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Taxation

Taxes in India are of two types – Direct and Indirect. Taxes that cannot be collected from third parties and whose burden directly falls on the tax payer are called Direct Taxes. Personal Income Tax, Corporate Tax and Wealth tax are examples of Direct Taxes. Indirect Taxes are those whose burden can generally be passed on to third parties and can be rightfully collected from them. The principal Indirect Taxes levied in India are Customs Duty, Excise Duty, Service Tax and Sales Tax.

Personal Income Tax

Personal Income Tax is levied on the incomes of individuals, Hindu Undivided Families (HUFs), firms, bodies of individuals and other associations of persons. Personal income tax is progressive – the rate of tax rises as the level of income rises.

Personal Income Tax slab for financial year 2009 – 2010

 

 

For Individual / HUF / AOP / BOI

Taxable Income up to Rs. 1,60,000                      - NIL

From Rs. 1,60,001 to Rs. 3,00,000                       - 10%

From Rs. 3,00,001 to Rs. 5,00,000                       - 20%

 

Above Rs. 5,00,000                                              - 30%

For Women ( < 65 years of age)

 

Taxable Income up to Rs. 1,90,000                      - NIL

From Rs. 1,90,001 to Rs. 3,00,000                       - 10%

From Rs. 3,00,001 to Rs. 5,00,000                       - 20%

 

Above Rs. 5,00,000                                              - 30%

For Senior Citizen ( >= 65 years of age)

 

Taxable Income up to Rs. 2,40,000                      - NIL

From Rs. 2,40,001 to Rs. 3,00,000                       - 10%

From Rs. 3,00,001 to Rs. 5,00,000                       - 20%

Above Rs. 5,00,000                                              - 30%

 

 Personal Income Tax slab for financial year 2010 – 2011

 

For Individual / HUF / AOP / BOI

 

Taxable Income up to Rs. 1,60,000                      - NIL

From Rs. 1,60,001 to Rs. 5,00,000                       - 10%

From Rs. 5,00,001 to Rs. 8,00,000                       - 20%

Above Rs. 8,00,000                                              - 30%

For Women ( < 65 years of age)

 

Taxable Income up to Rs. 1,90,000                      - NIL

From Rs. 1,90,001 to Rs. 5,00,000                       - 10%

From Rs. 5,00,001 to Rs. 8,00,000                       - 20%

Above Rs. 8,00,000                                              - 30%

 

 For Senior Citizen ( >= 65 years of age)

 

Taxable Income up to Rs. 2,40,000                      - NIL

From Rs. 2,40,001 to Rs. 5,00,000                       - 10%

From Rs. 5,00,001 to Rs. 8,00,000                       - 20%

Above Rs. 8,00,000                                              - 30%

 

 Income Tax Calculation

 

Following are the five steps for personal income tax calculation:

 

Step I – Calculate Gross Total Income

Step II – Calculate Total Income after deduction of the eligible deductions

Step III – Calculate taxes on total income according to the applicable tax slab

Step IV – Calculate Tax Payable

Step V – Calculate Net Tax Payable

 Income Tax Deductions

 Deduction is the amount, which is reduced from the gross total income before computing tax. The Income Tax Act provides for a number of deductions from the Gross Total Income for certain investments and contributions. The brief details of some important deductions are:

·                          Section 80 C – Investment made in GPF/PPF/Life Insurance/NSC/ELSS/Bank Fixed Deposits for a minimum of 5 years/NABARD Bond/Tuition Fees of not more than two children, etc. up to a maximum limit of Rs. 1,00,000.

 

·                          Section 80 CCC – Premium paid in Pension Scheme of government or private insurance companies up to a maximum limit of Rs. 1,00,000.

·                           Section 80 CCD – Deduction in respect of contribution to pension schemes up to a maximum of 10% of salary.

·                           Section 80 CCF – Deduction of an additional amount of Rs. 20,000 shall be allowed for investment in long-term infrastructure bonds.

·                          Section 80 CCE – Aggregate sum of investment made under Section 80 C, Section 80 CCC and Section 80 CCD should not be more that Rs. 1,00,000

·                     Section 80 D – Medical insurance premium up to Rs. 15,000 for the health of self/wife/children and an additional Rs. 15,000 (Rs. 20,000) is allowed for medical insurance for dependent parents.

·                  Section 80 DD – Deduction in respect of medical treatment and deposit made for maintenance of handicapped dependents is Rs. 50,000 irrespective of actual amount of expenditure incurred.

·                       Section 80 DDB – Deduction in respect of medical treatment up to a maximum limit of Rs. 40,000.

·                    Section 80 E – Deduction in respect of interest on loan taken for higher education of self/spouse/children.

 

·                     Section 80 G – Donation given to Prime Minster/Chief Minister Relief Funds or eligible voluntary organizations, charitable trusts, etc.

·                  Section 80 L – If interest is earned on Govt. Securities, Bank deposits, Post Office deposits, debentures, National Savings Certificates etc., deduction up to Rs. 12,000 is allowable from the net  income after deducting the expenditure incurred in earning it.  Further, an additional deduction up to Rs. 3,000/- will be allowable on interest from Govt. Securities, if not already covered in the Rs. 12,000/- limit mentioned earlier.

·                      Section 80 GG – Deduction in respect of rent paid. Least of the following amount is allowable:

(i)                 Rent paid minus 10% of assessee’s total income; or

(ii)              Rs. 2,000 per month; or

 

(iii)            25% of total income  

Income Tax Exemptions

 

Income tax exemptions means income exempt from tax or tax free income described in Section 10 of Income Tax Act, 196, out of which, some important provisions are described in brief as follows:

 

·                   Section 10(1) – Income from agriculture is exempt. However, if the net agriculture income exceeds Rs. 5,000 it is taken into account for slab purpose.

·                   Section 10(2) – Share of income of an HUF for the member is exempt.

·                   Section 10(2A) – After assessment of tax of a partnership firm, the income for its partner is exempt from tax.

·                   Section 10(10D) – Any sum received from a life insurance policy including bonus is exempt, except the following:

(i)                 Any sum received from key man insurance scheme and other insurance scheme eligible for deduction U/s 80 DD/DDA.

 

(ii)              Any sum received from life insurance policy issued after 1.4.2003 whose annual premium is more than 20% of sum assured and if insured person

           is   alive.

·                   Section 10(15) – Interest received from post office saving scheme and government relief bonds.

·                   Section 10(16) – Scholarship received to meet out the expenditure of education.

·                   Section 10(25) – Income of Statutory Provident Fund or an approved superannuation fund or gratuity fund.

·                   Section 10(32) – Income of minor child up to Rs. 1,500 is tax free; but if exceeds will be added to income of parents.

·                   Section 10(34) – Dividend distributed on or after 1.4.2003 by a domestic company will be exempted in the hands of investor.

 

·           Section 10(38) – Any long-term capital gain; arising from transfer of equity shares of a company or units of an equity oriented fund on or after 1.10.2004, subjected to Securities Transaction Tax are exempt from tax for the investor.