Income Tax Law In India 20 November

INCOME TAX LAW IN INDIA AFTERSCHO☺OL – DEVELOPING CHANGE MAKERS CENTRE FOR SOCIAL ENTREPRENEURSHIP PGPSE PROGRAMME – World’ Most Comprehensive programme in social entrepreneurship & spiritual entrepreneurship OPEN FOR ALL FREE FOR ALL

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INCOME TAX LAW IN INDIA Dr. T.K. Jain.

AFTERSCHO☺OL Centre for social entrepreneurship Bikaner M: 9414430763 [email protected] www.afterschool.tk, www.afterschoool.tk www.afterschoool.tk

AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS

State whether the following are capital or revenue receipts • • • • • • •

1. Kapsa Ltd.. received Rs. 2,00,000 as compensation from CD & Co. for premature termination of contract of agency. CAPITAL RECEIPT 2. Sales-tax collected from the buyer of goods.= REVENUE 3. Goti Company Ltd. instead of receiving royalty year by year, received it in advance in lump sum. = REVENUE 4. An amount of Rs. 1,50,000 was spent by a company for sending its production manager abroad to study new methods of production. = REVENUE 5 Payment of Rs 50 000 as compensation for cancellation of a contract for the purchase of a machinery with a view to avoid an unnecessary expenditure. = CAPITAL 6. An employee director of a company was paid Rs. 1,75,000 as a lump sum consideration for not resigning from the directorship = REVENUE

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WHAT IS REVENUE & WHAT IS CAPITAL? • Capital / any amount received against capital is called capital receipt. This is not taxed (because in income tax, we tax income not the capital). • Revenue is income and therefore taxable. • If we sell an asset, the money received is capital receipt, but if we sell it on annuity, where we receive annual payments, this becomes revenue receipt. • For a furniture seller, sale of furniture is revenue receipt, but for ordinary person, it is capital receipt. www.afterschoool.tk

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I received Rs. 100 as premium on redemption of debenture, is it revenue? • It is a capital receipt.

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I received Royalty of Rs. 100,is it revenue or capital receipt? • Revenue

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We had some stock & some shares in the UK, due to exchange fluctuation, we got benefit of Rs. 5000 in each of these, are they revenue receipts? • Stock = revenue receipt • Shares = capital receipt (I don’t have the business of dealing in shares).

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I receive a lump sum payment of pension, is it revenue or capital receipt? • It is capital receipt, but it is taxable just like salary etc (as per the law).

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Payment received on termination of agency - captial or revenue receipt? • capital

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What is immaterial? • • • • • •

How do you do accounting? How do you invest the money received? How do you treat the receipt ? What do you call the receipt? How do you treat the amount? The important thing is the nature of receipt = rest all are immaterial.

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Incomes deemed to be received? • • • • •

Amt. TDS (198) Unexplained investments (69) Unexplained money (69A) Dividend or interim dividend (2(22) ) Standard Triumph Motor Case ( any entry in buyer’s account in favour of supplier is a proof of payment and therefore the other party is liable to pay tax. (NRIs are affected).

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Income accrued… 1. Income accrues where the place is – (place of contract). 2. Taxability is on = Income received or deemed to be received in India – (it doesn’t matter where it acrued). 3. Taxability on accruel = acrued in India – no matter where you receive it.

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Which of the following is taxable for Resident OR, NR, NOR? • Profits on sale of a building in India but received in Holland 200,000 • Taxable in all cases (because acrued in India).

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Which of the following is taxable for Resident OR, NR, NOR? •

Pension from former employer in India received in Holland 24,000

• Taxable in all cases ( acrued in India)

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Which of the following is taxable for Resident OR, NR, NOR? Interest on U.K. Development Bonds (10000 being received in India) 20,000 (in case of ROR 20000 taxable, in other cases only 10000 taxable) Income from property in Australia and received in U.S.A. 85,000 (taxable only in case of ROR) Income earned from a business in Abyssinia which is controlled from Bikaner (Rs. 30,000 received in India) 70,000 (In NR 30000 taxable, but in other cases 70000 taxable) Dividend on shares of an Indian company but received in Holland [ qualifying for exemption under Section 10(33)] 10,000 (taxable in all cases – acrued in India) www.afterschoool.tk

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AGRICULTURE INCOME • Sec 2 (1A) • Article 270 of Constitution says that Centre is not competent to levy tax on agriculture • Some state govt. have imposed tax on agriculture (as it is a matter of state list). • From 1974-75, we use agriculture in calculation of tax for non-agriculture items. www.afterschoool.tk

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Agriculture income include the following.. • Rent from land used for agriculture • Income from agriclute, sale of cultivation etc. • Building in attachment to agriculture land use for storage of products etc. – and its rent etc. (building should be away from 8 KM from municipality, etc.)

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Agriculture operations .. • There are 2 operations: • 1. basic : include tilling of land etc. • 2. subsequent operations: include pruning, cutting etc. • Agriculture income will be exempt if basic operations have been done by the person, if he has done only subsequent operation, then income will not be exempt. www.afterschoool.tk

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Following are not agriculture income… • • • • • • •

Income from fisheries Income from brick making Income from animal husbandary Income from mines Salary of farmhouse Dividend of a company in agriculture Income from sponteneous growth of grass, trees, banboos etc.

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Income from Latex • 35% income is liable to tax

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Income from coffee… • 40% income is liable to tax

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Income from Tea • 40% is business income (after deducting cost of cultivation etc)

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Market value method… • Where a factory has its farmhouse – then market value of that crop is deducted to arrive at agriculture income and this is exempt. • If the crop is not sold in the market, then cost, rent and reasonable profit is exempt (on agriculture crop only).

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Person (sec. 2 (31)) • • • • • • •

Individual HUF Company Firm AOP Local authority Artificial juridical person

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Exemption to the general rules of sec. 4 • Normally tax is assessed in next year to the year in which it becomes due. However there are exemptions .. Like .. • Shipping business (172) – in the year when income takes place – 7% is treated as income • Persons leaving India (174) – till the date of departure – is assessed. www.afterschoool.tk

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Assessment in the same year… • Assessment of AOPs formed for a particular purpose (174A) • Assessment of persons trying to alienate property to avoid tax (175) • Assessment of income from discontinued businesses (176)

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Is subsidy / grant taxable? • If it is capital receipt – not taxable • If revenue receipt – taxable. • If subsidy is received to supplement regular business – taxable • If there is special purpose grant – it is not taxable.

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AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS

Is lump sum receipt of salary taxable? • Yes (it is not considered capital receipt).

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Is annuity taxable? • Yes • (but annual instalment of payments for sale of property is not taxable).

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Is royalty taxable? • Yes

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Is premium on redemption of debenture taxable? • No – it is considered capital receipt.

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Residence … • • • •

There are 3 possibilities: Resident (resident and ordinary resident) Non-resident Non-ordinarily resident

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Resident : •

Fulfill any one of the 2 conditions: 2. He has been in india for at least 182 days during the previous year 3. He has been in India for at least 365 days during the last 4 years preceding the previous year and has been in India for at least 60 days during the previous year. www.afterschoool.tk

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Resident and ordinary resident: •

Both the following conditions must be satisfied, besides the previous conditions… 2. He has been resident in 9 out of 10 past years. 3. He has been in India in 729 days during 7 previous years preceding the previous years. www.afterschoool.tk

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Residential status of HUF and partnershps.. • It depends on management and control of the firm. • If management and control is in India, taxation will be in India.

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Mr. P, an Indian Citizen, is living in Delhi since 1960, left for Japan on July 1,2005. He comes back on August 7,2007. Determine his residential status for the assessment year 2008-9. • From 7 August to 31 March: • (25+30+31+30+31) = 147 days. • Thus he has stayed for more than 60 days. Plus he has been in India for 365 days during last 4 years and fulfills both the conditions. Thus he is ROR. www.afterschoool.tk

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Dr. Ramesh Jain, an Indian Citizen and a Professor in AFTERSCHO☺OL , Jaipur, left India on September 15, 2008 for USA to take up Professor’s job in HBS , USA. Determine his residential status for the assessment year 2009-10. • His stay in India March onwards : (30+31+30+31+31+15) = 168 days. • When a person goes out for job, then 182 + 365 days requirement applies (not 60 days). Thus Mr. Jain should have stayed in India for 182 days during the previous year + 365 days during the last 4 years. Thus he is non-resident. www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS

Is it taxable : income received in India (Whether accrued in or outside India) • Yes taxable in all cases

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AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS

income received in the USA ( accrued in India) • Taxable in the case of ROR and RNR • (ROR = resident and ordinary resident) • (RNR = Resident and not-ordinary resident).

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State - whether this is taxable or not: Income earned and received outside India but later on remitted to India (whether tax incidence arises at the time of remittance?) • Not taxable in any case.

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AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS

Income earned in India and received outside India but later on remitted to India (whether tax incidence arises at the time of remittance?) • Taxable in all the cases.

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Income earned out of India and received in India (whether tax incidence arises at the time of remittance?) • Taxable in all the cases

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Whether this is taxable: Income received and accrued outside India from a business controlled from outside India or a profession set up outside India • Taxable only in the case of ROR.

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Whether this will be taxable : Income received and accrued outside India from a business controlled or a profession set up in India • Taxable in the case of ROR and RNR. www.afterschoool.tk

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Income deemed to accrue or arise in India (Whether received in India or outside India) • Taxable in all the cases.

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Profits earned from a business in the U.S.A. controlled from Pakista and amount deposited in a bank there • Taxable only in the case of ROR

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AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS

Agricultural income from Burma not remitted to India • TAXABLE ONLY IN THE CASE OF ROR

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Dividends from a German company credited to his account in Nepal • ONLY TAXABLE IN THE CASE OF ROR

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Past untaxed foreign income brought into India during the year • Not taxable in any case.

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Pension for services rendered in India, but received in Pakistan • Taxable in each of the 3 cases.

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Honorarium received from Govt. of India • Taxable in all cases.

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Profits earned from a business in Rajasthan controlled from Pakistan • Taxable in all the cases

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Profits earned from a business in The USA controlled from Mumbai • Taxable in ROR & RNR.

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Profits earned from a business in USA controlled from Maldives and amount deposited in a Bank there • Taxable only in the case of ROR.

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ABOUT AFTERSCHO☺OL Afterschoool conducts three year integrated PGPSE (after class 12th along with IAS / CA / CS) and 18 month PGPSE (Post Graduate Programme in Social Entrepreneurship) along with preparation for CS / CFP / CFA /CMA / FRM. This course is also available online also. It also conducts workshops on social entrepreneurship in schools and colleges all over India – start social entrepreneurship club in your institution today with the help from afterschoool and help us in developing society.

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Why such a programme? • To promote people to take up entrepreneurship and help develop the society • To enable people to take up franchising and other such options to start a business / social development project • To enable people to take up social development as their mission • To enable people to promote spirituality and positive thinking in the world www.afterschoool.tk

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Who are our supporters? • Afterschoolians, our past beneficiaries, entrepreneurs and social entrepreneurs are supporting us. • You can also support us – not necessarily by money – but by being promotor of our concept and our ideas.

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About AFTERSCHO☺OL PGPSE – the best programme for developing great entrepreneurs • • • • •

Most flexible, adaptive but rigorous programme Available in distance learning mode Case study focused- latest cases Industry oriented practical curriculum Designed to make you entrepreneurs – not just an employee • Option to take up part time job – so earn while you learn • The only absolutely free course on internet www.afterschoool.tk

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Workshops from AFTERSCHO☺OL • • • • • • • • •

IIF, Delhi CIPS, Jaipur ICSI Hyderabad Branch Gyan Vihar, Jaipur Apex Institute of Management, Jaipur Aravali Institute of Management, Jodhpur Xavier Institute of Management, Bhubaneshwar Pacific Institute, Udaipur Engineering College, Hyderabad

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Flexible Specialisations: • • • • • • • • • •

Spiritualising business and society Rural development and transformation HRD and Education, Social Development NGO and voluntary work Investment analysis,microfinance and inclusion Retail sector, BPO, KPO Accounting & Information system (with CA / CS /CMA) Hospital management and Health care Hospitality sector and culture and heritage Other sectors of high growth, high technology and social relevance

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Salient features: • The only programme of its kind (in the whole world) • No publicity and low profile course • For those who want to achieve success in life – not just a degree • Flexible – you may stay for a month and continue the rest of the education by distance mode. / you may attend weekend classes • Scholarships for those from poor economic background • Latest and constantly changing curriculum – keeping pace with the time • Placement for those who are interested • Admissions open throughout the year • Latest and most advanced technologies, books and study material www.afterschoool.tk

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Components • • • • • • • • • • • • • •

Pedagogy curriculum and approach based on IIM Ahmedabad and ISB Hyderabad (the founder is alumnus from IIMA & ISB Hyderabad) Meditation, spiritualisation, and self development EsGotitial softwares for business Business plan, Research projects Participation in conferences / seminars Workshops on leadership, team building etc. Written submissions of research projects/articles / papers Interview of entrepreneurs, writing biographies of entrepreneurs Editing of journals / newsletters Consultancy / research projects Assignments, communication skill workshops Participation in conferences and seminars Group discussions, mock interviews, self development diaryng Mind Power Training & writing workshop (by Dr. T.K.Jain)

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Pedagogy • • • • • • • • •

Case analysis, Articles from Harvard Business Review Quiz, seminars, workshops, games, Visits to entrepreneurs and industrial visits PreGotitations, Latest audio-visuals Group discussions and group projects Periodic self assessment Mentoring and counselling Study exchange programme (with institutions out of India) • Rural development / Social welfare projects www.afterschoool.tk

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Branches • AFTERSCHO☺OL will shortly open its branches in important cities in India including Delhi, Kota, Mumbai, Gurgaon and other important cities. Afterschooolians will be responsible for managing and developing these branches – and for promoting social entrepreneurs.

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Case Studies • We want to write case studies on social entrepreneurs, first generation entrepreneurs, ethical entrepreneurs. Please help us in this process. Help us to be in touch with entrepreneurs, so that we may develop entrepreneurs.

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Basic values at AFTERSCHO☺OL • • • • • •

Share to learn more Interact to develop yourself Fear is your worst enemy Make mistakes to learn Study & discuss in a group Criticism is the healthy route to mutual support and help • Ask fundamental questions : why, when, how & where? • Embrace change – and compete with yourself only www.afterschoool.tk

AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS

www.afterschoool.tk social entrepreneurship for better society

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