Income Tax

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Income Tax

Income-tax

Income Tax services in India provides by GetmyCA, where Income Tax is a fee charged by a government on a product, activity or income there are two types of taxes direct Tax: If tax is levied directly on the income or wealth of a person, then, it is a direct tax Indirect Tax: If tax is levied on the price of a good or service, then, it is a Indirect Tax. E.g. GST or Custom Duty.


Income Tax services in India constitute the basic source of revenue to the government. Revenue so raised is utilized for meeting the expenses of govt. like defense, provision of education, healthcare, dams etcconstitution of India gives the power to levy and collect taxes, whether direct or indirect, to the central and state government income-tax is the most significant direct tax.

  • Income tax services in India is a tax levied on the total income of the previous year of every person. A person includes an individual, Hindu Undivided Family (HUF), Association of Persons (AOP), Body of Individuals (BOI) law in India consists
  • Income Tax Act.
  • Annual Finance Act.
  • Income Tax Rules.
  • Circulars/ Notifications
  • Legal Decisions of Court
  • Income-tax is levied on an assessee's total income. Such total income has to be computed as per the provisions contained in the Income-tax Act, 1961. Income is classified under different heads:
  • Isalaries
  • Income From house property
  • Profits and Gains from Business or Profession
  • Capital Gains
  • Income from Other Sources
Income-tax

These heads of income exhaust all possible types of income that can accrue to or be received by the tax payer. Accordingly, the income is classified as follows:

  • 1. Salary, pension earned is taxable under the head "Salaries".
  • 2. Rental income is taxable under the head "Income from house property".
  • 3. Income derived from carrying on any business or profession is taxable under the head "Profits and gains from business or profession".
  • 4. Profit from sale of a capital asset is taxable under the head "Capital Gains".
  • 5. The fifth head of income is the residuary head. The income which is not taxable under the first four heads will be taxed under the head "Income from other sources".

The tax payer has to classify the income earned under the relevant head of income.

Income Tax services in India is to be computed in accordance with the provisions governing a particular head of income. There are certain incomes which are wholly exempt from income-tax.e.g. agricultural income. These incomes have to be excluded and will not form part of Gross Total Income. Also, some incomes are partially exempt from income-tax e.g. House Rent Allowance, Education Allowance. These incomes are excluded only to the extent of the limits specified in the Act. The balance income over and above the prescribed exemption limits would enter computation of total income and have to be classified under the relevant head of income

There are deductions and allowances prescribed under each head of income. For example, while calculating income from house property, municipal taxes and interest on loan are allowed as deduction

aIncome-tax
Income-tax

An assessee may have different sources of income under the same head of income. He may have profit from one source and loss from the other. For instance, an assessee may have profit from his textile business and loss from his printing business.This loss can be set-off against the profits of textile business to arrive at the net income chargeable under the head "Profits and gains of business or profession". Similarly, an assessee can have loss under one head of income, say, Income from house property and profits under another heads of income, say, profits and gains of business or profession. There are provisions in the Income-tax Act, 1961 for allowing inter-head adjustment in certain cases. However, there are also restrictions in certain cases

The final figures of income or loss under each head of income, after allowing the deductions, allowances and other adjustments, are then aggregated, after giving effect to the provisions for clubbing of income and set-off and carry forward of losses, to arrive at the gross total income.

The rates of tax for the different classes of assessees are prescribed by the Annual Finance Act. For individuals, HUFs etc., there is a slab rate and basic exemption limit. At present, the basic exemption limit is ~ 2,50,000 for individuals. This means that no tax is payable by individuals with total income of up to t 2,50,000 those individuals whose total income is more than t 2,50,000 but less than 5,00,000 have to pay tax on their total income in excess of~ 2,50,000 @ 5% and so on. the highest rate is 30%, which is attracted in respect of income in excess of~ 10,00,000

Surcharge: is an additional tax payable over and above the income-tax. surcharge is levied as a percentage of income-tax. In case where the total income of an individual/HUF/AOP/BOI exceeds ~ 50 lakhs but does not exceed ~ 1 crore, surcharge is payable at the rate of 10% of income-tax and in case total income exceeds r 1 crore, surcharge is payable at the rate of 15% of income-tax

Income-tax
Income-tax

Rebate under section 87A: In order to provide tax relief to the individual tax payers who are in the 5% tax slab, section 87 A provides a rebate from the tax payable by an assessee, being an individual resident in India, whose total income does not exceed~ 3,50,000. The rebate shall be equal to the amount of income-tax payable on the total income for any assessment year or an amount of~ 2,500, whichever is less.
The income-tax, as increased by the surcharge or as reduced by the rebate under section 87 A, if applicable, is to be further increased by an additional surcharge called health and education cess on income-tax @4% of income-tax plus surcharge, if applicable.

Although the tax liability of an assessee is determined only at the end of the year, tax is required to be paid in advance in four installments on the basis of estimated income i.e., on or before 15th June, 15th September, 15th December and 15th March

However, residents opting for presumptive taxation scheme can pay advance tax in one installment on or before 15th March instead of four installments. In certain cases, tax is required to be deducted at source from the income by the payer at the rates prescribed in the Income-tax Act, 1961 or the Annual Finance Act. Such deduction should be made either at the time of accrual or at the time of payment, as prescribed by the Act.

After adjusting the advance tax and tax deducted at source, the assessee would arrive at the amount of net tax payable or refundable. Such amount should be rounded off to the nearest multiple of~ 10. The assessee has to pay the amount of tax payable (called self-assessment tax) on or before the due date of filing of the return. Similarly, if any refund is due, assessee will get the same after filing the return of income.

Income-tax

Various Threshold Limits under the Income Tax Act

S.No Particulars Threshold Limits
A. Basic Exemption
1. Maximum amount of income which is not chargeable to Income-tax in case of Individual, HUF/ AOP/ BOI/ Artificial Juridical Person Rs.2,50,000
2. Maximum amount of income which is not chargeable to Income-tax in the hands of a resident senior citizen (who is at least 60 Years of age at any time during the previous year\ but less than 80 Years of age on the last day of the previous year) Rs.3,00,000
3 Maximum amount of income which is not chargeable to Income-tax in the hands of a resident super senior citizen (who is at least 80 Years of age at any time during the previous year) Rs.5,00,000
3A. Surcharge shall be charged at the rate of 10% of income-tax if net income is above Rs. 50 Lakh but it does not exceed Rs. 1 crore in case of Individual, HUF, AOP, BOI, Artificial judicial person (Subject to Marginal relief) Rs.50 Lakh
4. Surcharge shall be charged at the rate of 15% of income-tax if net income exceeds Rs. 1 Crore in case of Individual, HUF, AOP, BOI, Artificial judicial person (Subject to Marginal relief) Rs.1 Crore
4A. Surcharge shall be charged at the rate of 12% of income-tax if net income exceeds Rs. 1 Crore in case of Firms, Co-operative Societies, Local Authorities (Subject to Marginal Relief) Rs.1 Crore
5. Surcharge shall be charged at the rate of 7% of income-tax if net income exceeds Rs. 1 Crore and at the rate of 12% if net income exceeds Rs. 10 Crores in case of domestic company (Subject to Marginal relief) Rs.1 Crore| 10 Crore
6. Surcharge shall be charged at the rate of 2% of income-tax if net income exceeds Rs. 1 Crore and at the rate of 5% if net income exceeds Rs. 10 Crores in case of foreign company (Subject to Marginal relief) Rs.1 Crore| 10 Crore
7. Tax rate of 25% in case of a domestic company where its total turnover or the gross receipt in the previous year 2016-17 does not exceed Rs. 250 crore (Subject to Marginal Relief) Rs.250 Crore
S.No. Particulars Section Threshold Limits (for exemptions and others)
B. Under the head Salaries
1. Entertainment Allowance (Exempt in case of Government employee only) 16(ii) Least of the following is exempt from tax: (a) Rs 5,000 (b) 1/5th of salary (excluding any allowance, benefit or perquisite)(c) Actual entertainment allowance received
2. Encashment of unutilized earned leave at the time of retirement by an employee (other than Government employee)(Subject to certain conditions) 10(10AA) FLeast of the following shall be exempt from tax: (a) Amount actually received (b) Unutilized earned leave** X Average monthly salary (c) 10 months Average Salary** (d) Rs. 3,00,000*While computing unutilized earned leave, earned leave entitlements cannot exceed 30 days for each year of service rendered to the current employer **Average salary = Average Salary*** of last 10 months immediately preceding the retirement **Salary = Basic Pay + Dearness Allowance (to the extent it forms part of retirement benefits)+ turnover based commission
3. Retrenchment Compensation received by a workman under the Industrial Dispute Act, 1947 (Subject to certain conditions). 10(10B) Least of the following shall be exempt from tax: (a) an amount calculated as per 10(10B)of the Industrial Disputes Act, 1947; (b) Rs. 5,00,000; or (c) Amount actually received.
4. Death -cum-Retirement Gratuity received by other employees who are covered under Gratuity Act, 1972 (other than Government employee) (Subject to certain conditions). 10(10) Least of following amount is exempt from tax: (1) (*15/26) X Last drawn salary** X completed year of service or part thereof in excess of 6 months. (2). Rs. 20,00,000 (3). Gratuity actually received. *7 days in case of employee of seasonal establishment. ** Salary = Last drawn salary including DA but excluding any bonus, commission, HRA, overtime and any other allowance, benefits or perquisite
5. Death -cum-Retirement Gratuity received by other employees who are not covered under Gratuity Act,1972 (other than Government employee)(Subject to certain conditions). 10(10) (1) 1/2 X Average Salary* X Completed years of service (2) Rs. 10,00,000 (3) Gratuity actually received. *Average salary = Average Salary of last 10 months immediately preceding the month of retirement **Salary = Basic Pay + Dearness Allowance (to the extent it forms part of retirement benefits)+ turnover based commission
6. Amount received on Voluntary Retirement or Voluntary Separation (Subject to certain conditions 10(10C) Least of the following is exempt from tax: 1) Actual amount received as per the guidelines i.e. least of the following (a) 3 months salary for each completed year of services (b) Salary at the time of retirement X No. of months of services left for retirement; or 2) Rs. 5,00,000
7. Children Education Allowance Sec. 10(14) read with Rule 2BB Up to Rs. 100 per month per child up to a maximum of 2 children.
8. Hostel Expenditure Allowance Sec. 10(14) read with Rule 2BB Up to Rs. 300 per month per child up to a maximum of 2 children.
9. Transport Allowance granted to an employee to meet expenditure on commuting between place of residence and place of duty Sec. 10(14) read with Rule 2BB Up to Rs. 3,200 per month for blind and handicapped employees
10. Transport Allowance to an employee working in anytransport business to meet his personal expenditure during his duty performed in the course of running of such transport from one place to another place provided employee is not in receipt of daily allowance. Sec. 10(14) read with Rule 2BB Amount of exemption shall be lower of following: a) 70% of such allowance; or b) Rs. 10,000 per month.
11. Allowances to Retired Chairman/Members of UPSC 10(45) Up to Rs.14,000 per month for defraying the service of an orderly and for meeting expenses incurred to wards secretarial assistance an contract basis.
12. Special compensatory Allowance (Hilly Areas) Sec. 10(14) read with Rule 2BB Amount exempt from tax varies from Rs. 300 to Rs. 7,000 per month.
13. Border area, Remote Locality or Disturbed Area or Difficult Area Allowance (Subject to certain conditions and locations) Sec. 10(14) read with Rule 2BB Amount exempt from tax varies from Rs. 200 to Rs.1,300 per month.
14. Tribal area allowance in (a) Madhya Pradesh (b) Tamil Nadu (c) Uttar Pradesh (d) Karnataka (e) Tripura (f) Assam (g) West Bengal (h) Bihar (i) Orissa, Sec. 10(14) read with Rule 2BB Up to Rs. 200 per month
15. Compensatory Field Area Allowance. If this exemption is taken, employee cannot claim any exemption in respect of border area allowance Sec. 10(14) read with Rule 2BB Up to Rs. 2,600 per month
16. Compensatory Modified Area Allowance. If this exemption is taken, employee cannot claim any exemption in respect of border area allowance (Subject to certain conditions and locations) Sec. 10(14) read with Rule 2BB Up to Rs. 1,000 per month
17. Counter Insurgency Allowance granted to members of Armed Forces operating in areas away from their permanent locations. If this exemption is taken, employee cannot claim any exemption in respect of border area allowance (Subject to certain conditions andlocations) Sec. 10(14) read with Rule 2BB Up to Rs. 3,900 per month
18. Underground Allowance to employees working in uncongenial, unnatural climate in underground mines (Subject to certain conditions) Sec. 10(14) read with Rule 2BB Up to Rs. 800 per month
19. Highly active field area allowance granted to members of armed forces (Subject to certain conditions and locations) Sec. 10(14) read with Rule 2BB a) Up to Rs. 1,060 per month (for altitude of 9,000 to 15,000 feet) b) Up to Rs. 1,600 per month (for altitude above 15,000 feet)
20. Highly active field area allowance granted to members of armed forces (Subject to certain conditions and locations) Sec. 10(14) read with Rule 2BB Up to Rs. 4,200 per month
21. Island Duty Allowance granted to members of armed forces in Andaman and Nicobar and Lakshadweep group of Island (Subject to certain conditions and locations) Sec. 10(14) read with Rule 2BB Up to Rs. 3,250 per month
22. Standard Deduction to salaried taxpayers 16(ia) Up to Rs. 40,000
23. Tax on contribution to an approved superannuation fund by the employer in respect of the employee Rule 3 To the extent it exceeds Rs.1,50,000 per year (not taxable if employer's contribution is Rs. 1 lakh or less per year)
24. Expense incurred by employer on providing educational facility to the children of the employee shall be exempt Rule 3 Up to Rs.1,000 per month per child
25. Interest on loan received from employer at concessional rate of interest couldn’t be taxed as perquisite in the hands of the employee Rule 3 Up to Rs.1,000 per month per child If aggregate amount of such loan during the relevant previous year does not exceed Rs.20,000
26. Free meal provided to employees during office hours by the employer couldn’t be taxed as perquisite in the hands of the employees Rule 3 If cost of such meal does not exceed Rs.50 per meal
27. Value of any gift received by the employee or by member of his household from employer is exempt in the hands of the employee Rule 3 Up to the extent of Rs.5,000 if received in kind
C. Under the head Income from House Property
1. Standard deductions 24(a) 30% of annual value
2. Interest incurred on borrowed capital for construction/ acquisition of self-occupied house property (Subject to certain conditions) 24(b) Up to Rs.2,00,000
3. Interest incurred on borrowed capital for re-construction, repair or renewal of self-occupied house property (Subject to certain conditions) 24(b) Up to Rs.30,000
D. Under the head Profits and Gains of Business or Profession
1. Deduction under section 32AC is available if actual cost of new plant and machinery acquired installed by a manufacturing company after 31-03-2013 but before 01-04-2015 exceeds Rs. 25/100 Crores, as the case may be (Subject to certain conditions). 32AC 15% of actual cost of new asset acquired and installed (if it exceeds Rs.25 Crores/100 Crores, as the case may be)
2. The agricultural extension project shall be considered for approval under section 35CCC if expenditure (not being expenditure in the nature of cost of any land or building) expected to be incurred on such project exceeds the threshold limit (Subject to certain conditions) Rule 6AAD read with section 35CCC Rs. 25,00,000
2A. If value adopted for stamp duty exceeds the consideration received on transfer of an immovable property, the stamp duty value shall be deemed to be the full value of consideration. 43CA However, if stamp duty value does not exceed 105% of the consideration received, the consideration so received shall be deemed to be the full value of consideration
3. Compulsory maintenance of prescribed books of account - Specified Profession (Subject to certain conditions and circumstances) 44AA Persons carrying on specified profession
4. Compulsory maintenance of books of account Other business or profession 44AA 1) If the total sales, turnover or gross receipts exceeds Rs 10,00,000 in any one of the three years immediately preceding the previous year; or (2) If the income from business or profession exceeds Rs 1,20,000 in any one of the three years immediately preceding the previous year Note: Individuals or HUFs shall be required to maintain books of account when either their gross turnover/gross receipts exceed Rs 2,50,0000 or their income from business or profession exceed Rs 2,50,000.
5. Compulsory Audit of books of accounts (Subject to certain conditions and circumstances) 44AB (1) If total sales, turnover or gross receipts exceeds Rs. 1 Crore in any previous year,in case of business; or Note: Provided that this section is not applicable to the person, who opts for presumptive taxation Scheme under Section 44AD and his total sales or turnover does not exceed Rs 2 crores.(2) If gross receipts exceeds Rs. 50 Lakhs in any previous year, in case of profession.
6. Limit on payments in cash for expenses/ liability (Subject to certain conditions and exceptions) 40A(3) 1) Rs. 10,000 (total payment to a person in a day)(2) Rs. 35,000 (total payment to a person in a day) for payments made for plying, hiring or leasing of goods carriage.
7. Computation of income from eligible business on presumptive basis under Section 44AD. 44AD Presumptive income of eligible business shall be 8 % of gross receipt or total turnover (if turnover of eligible business does not exceed Rs. 2 crore) Note: Presumptive income shall be calculated at rate of 6% in respect of total turnover or gross receipts which is received by an account payee cheque or draft or use of electronic clearing system.
7A. Computation of income from eligible profession on (conditions) 44ADA Presumptive income shall be 50% of total gross receipt if the total gross receipts from such profession do not exceed Rs.50 lakh in a previous year.
8. Presumptive income from business of plying, hiring or leasing of goods carriage if assessee does not own more than 10 goods carriage. 44AE For Heavy Goods Vehicle:
Rs. 1,000 per ton of gross vehicle weight for every month or part of a vehicle is owned by assessee For Other Goods Vehicle:
Rs. 7,500 for every month or part of a month during which the goods carriage is owned by assessee
9. Alternate Minimum Tax (in case of Individual, HUF,AOP or BOI)(Subject to certain conditions) 115JC 18.5% of adjusted total income (plus surcharge and education cess) provided adjusted total income exceeds Rs.20,00,000.
10. Applicability of Domesti Transfer Pricing, if aggregate value of transactions with associated enterprises during the previous year exceeds the threshold limit 92BA Rs. 20 Crores
11. Every person who has entered into an international transaction or a specified domestic transaction shall keep and maintain the specified information and documents Rule 10D read with section 92D If aggregate value, as recorded in the books of account, of international transactions entered into by him exceeds Rs.1,00,00,000
E. Under the head Income from Capital Gains
1. Share or interest ('assets') in a foreign company or entity shall be deemed to be situated in India, if such assets derives, directly or indirectly, its value the assets located in India. Provided assets, on the specified date, exceeds the prescribed limit. 9(1)(i) If the value of assets:
(a) Exceeds Rs. 10 crores; and
(b) Represents at least 50% of value of all assets owned by the company or entity.
1A. If value adopted for stamp duty exceeds the consideration received on transfer of an immovable property, the stamp duty value shall be deemed to be the full value of consideration. 50C However, if stamp duty value does not exceed 105% of the consideration received,the consideration so received shall be deemed to be the full value of consideration.
2. Limit on investment made by an assessee in bonds of NHAI or REC etc., from long term capital gains arising from transfer of an immovable property (being Land or Building or both) during the financial year, for claiming exemption (Subject to certain conditions) 54EC Rs. 50,00,00 during the financial year in which immovable property is transferred and in subsequent financial year
3. Exemption from long-term capital gain if such gain is invested by an assessee in units of fund as may be notified by Central Government to finance start-ups. 54EE Investment in new assets or capital gains, whichever is lower, however,subject to Rs: 50 lakhs.
4. Tax on long-term capital gains arising from transfer of an equity share, or a unit of an equity oriented fund or a unit of a business trust. 112A No tax if long-term capital gain doesn't exceed Rs.1,00,000 [applicable from assessment year 2019-20]
F. Under the head Income from Other Sources
1. Gifts without consideration/ inadequate consideration from non-relatives (Subject to certain conditions) 56 Gift up to Rs. 50,000 is not chargeable to tax
1A. Transfer of immovable property for inadequate consideration. 56 If stam duty value exceeds higher of following amount: (a) Rs. 50,000; and (b) Amount equal to 5% of the consideration.
2. Standard Deduction for family pension 57(iia) 33.33% of Family Pension subject to maximum of Rs.15,000
3. Dividend received from domestic company by all resident person (other than domestic company and certain funds, trusts, instructions,etc.) shall be chargeable to tax at the rate of 10% 115BBDA If aggregate amount of dividend received during the year exceeds Rs.10,00,000.
G. Trust
1. Activity for advancement of any other object of general public utility shall be considered as charitable activity 2(15) If activity is undertaken in course of carrying out of object of general public utility and aggregate receipts from such activity do not exceed 25% of total receipts of financial year.
2. Anonymous donation to be taxed at the rate of 30% 115BBC To the extent it exceeds 5% of total donations received by assessee or Rs.1,00,000, whichever is higher
3. Annual receipts should not exceed the threshold limit for the purposes of claiming exemption 10(23C)(iiiad)/(iiiae) Rule 2BC Rs.1 Crore
4. Maximum amount which an electoral trust can spend for managing its affairs Rule 17CA 5% of the total contributions received in a year subject to an aggregate limit of Rs. 5,00,000 in the first year of incorporation and Rs.3,00,000 in subsequent year
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