Salary Structuring, CTC Components, Documentations, Records, Tax Return Filings
Salary in common parlance means any amount paid by an employer to his employees in lieu of services rendered by them. However income tax act 1961 defines the term “ salary” u/s 17(1) to include the following monetary as well as non-monetary payments :-a) Wages, b) Annuity or pension, c) Any Gratuity, d) Any fees, commission, perquisite or profits in lieu of or in addition to any salary or wages, e) Any Advance of Salary, f) Leave Encashment, g) Employers contribution to provident fund in excess of 12% of Salary etc.
Taxability of Annuity
· Annuity received from present employer is taxed as “ Salary”
· Annuity received from past employer is taxed as “ Profits in Lieu of Salary”
· Annuity received from a person other than employer is taxed under” Income from Other Sources”, such as “LIC ANNUITY”.
· All annuities received are chargeable to tax and there is no exemption whatsoever.
Taxability of Pension: Pension is any amount of periodic payment made by an employer to the employee in consideration of past service payable after retirement.
Pension is of two Kinds:-
1. Uncommuted Pension: - Uncommuted pension is pension received periodically. It is fully taxable in the hands of both government and non-government employees.
2. Commuted Pension:– Commuted pension means lump sum amount taken by commuting the whole or part of the pension
Commuted pension received by employees of the central government/local authorities/ statutory corporation/members of the defence services is fully exempt from tax. Commuted pension received by non-government employees is taxable subject to exemption u/s 10(10A) of the Income Tax Act.
Taxability of Allowances:
Allowance means any amount received by employee from employer in order to meet some specific expenses.
Allowances can be classified into three categories:-
· Allowances that are fully taxable
· Allowances which are exempted for a specific amount
· Allowances which are exempted on the basis of actual expenditure
· Allowance which are fully exempt
Taxability of Perquisites
An employee may be provided with several perquisites by an employer. The perquisites are any benefits provided by an employer to employee.
· Rent Free Accommodation (Furnished or Unfurnished)
· Obligation of Employee met by Employer (Electricity/Water/Heater/Gas, Sweeper/ Gardener/ Watchman/Domestic Servant etc.)
· Car with Driver
· Medical Facilities
· Leave Travel Allowance (LTS or LTC)
Free Meals, Use of Movable Property (Laptop, Computers), Transfer of movable assets to Employees, Club Expenses, Credit Card Expenses, Gifts or Vouchers, Loans from Employers-Interest free or Concessional etc.
Taxability of Retrenchment Compensation
Voluntary Retirement Receipts
Income-tax paid by employer
Standard Deductions (Currently Rs.50,000/-)
House rent allowance
Professional & Self-employed taxation
Taxation applicability, Presumptive Taxation, Records, Books, Accounts, Audit, Structuring, Entity Formation, Tax Return Filings, GST
Section 44ADA: Presumptive Professional Income
A resident person who is engaged in a prescribed profession with a gross receipt up to Rs. 50 lakh in a Financial Year can consider his taxable professional income as 50% of the gross receipt and not file detailed Income Tax Return.
Prescribed Profession includes Legal [Advocates], Medical [Doctor, physiotherapist, Nurse], Engineer, Architectural profession, The profession of accountancy [Chartered Accountants (CA)], Technical consultancy [DNS, Networking, Unix, Oracle, SQL Scripting etc.], Interior decoration & Any other profession to be notified by CBDT.
Tax Audit [u/s 44AB(d)] Tax Audit is required when (1) A taxpayer claims his professional Income (PGBP) below 50% of gross receipt while filling return under this scheme, and (2) his income exceeds the maximum amount which is not chargeable to income-tax in a financial year (Above Annual Professional Receipts of Rs.50 lakhs)
SME & Small Business Taxation
Entity Formation, Taxation, Presumptive Taxation, GST, Accounts, Books, Records, Audit, Tax Return Filings
Presumptive Taxation Section 44AD of Income Tax Act
Person adopting presumptive taxation schemes are exempt from getting their books of account audited. Types of tax assesses can adopt this are Resident Individuals, HUFs & Partnership Firms having:
ü Income from Business with an annual Turnover of up to Rs.1 cr.
ü Not claimed tax deduction under the Sections 10A, 10AA, 10B, 10BA or have not claimed deductions under Section 80HH to 80 RRB during the year
ü Firm or an individual assessee involved in professional services in which the income is earned in the nature of brokerage or commission cannot adopt presumptive taxation schemes.
ü Individuals or firms engaged in the business of plying and hiring goods carriages cannot adopt these provisions as they are covered under Section AE
Sec 44AD provides special provision for computing profits and gains of business on presumptive basis. You need not to maintain proper accounting. Your net income is estimated to be @8% of your gross receipt/turnover. From F.Y. 2016-17, net income is calculated as @6% of gross receipts are received through digital mode of payments and @8% of gross receipts are received in cash. Businesses, whose annual gross turnover/receipt does not exceed Rs. 2 Crore, are eligible for this scheme.
"Section 44AB of the Income-tax Act (‘the Act’) makes it obligatory for every person carrying on business to get his accounts of any previous year audited if his total sales, turnover or gross receipts exceed one crore rupees. However, if an eligible person opts for presumptive taxation scheme as per section 44AD(1) of the Act, he shall not be required to get his accounts audited if the total turnover or gross receipts of the relevant previous year does not exceed two crore rupees. The higher threshold for non-audit of accounts has been given only to assessees opting for presumptive taxation scheme under section 44AD."
Maintenance of prescribed books of account-Section 44AA
For those who have not opted for Presumptive Taxation Sections 44AB, 44ADA, 44AE & Income exceeding Rs.2.5 lakhs
Ø Persons carrying on specified profession and their gross receipts exceed Rs. 1.5 Lakh
Ø If total sales, turnover or gross receipts exceeds Rs. 25 Lakhs
HNIs Tax Structuring
Tax Planning, Entity Formation, Documentation, Accounts, Records, Documentations, Audit, Tax Return Filings
There is no standard definition of HNIs in India; it can be based on Net Worth, Investible surplus, assets or Income. Some experts define Wealth definition, HNI is a person with more than Rs.5 crore in investable surplus, while those with more than Rs.25 crore investable surpluses fall in the bracket of ultra HNIs. They are also paying relatively high taxes.
What is Tax Planning?
The word ‘tax planning’ connotes the exercise carried out by the taxpayer to meet his tax obligations in proper, systematic and orderly manner availing all permissible exemptions, deductions and reliefs available under the statute as may be applicable to his case.
Tax planning is the activity undertaken by a taxpayer who could be an individual, a business or an organisation to reduce the total tax liability by optimally utilising all the allowances, deductions, rebates, concessions and exclusions available well within the legal framework. Simply put, tax planning is the art of managing your income and taxes in an efficient manner so that you pay the least amount of tax on your total income.
However, one of the biggest problems in India while doing tax planning is that most of the taxpayers tend to restrict tax planning to just tax saving investments, but in reality tax planning is a much broader concept.
Tax Planning is most important part of Wealth & Estate Planning for Tax Payers In India especially for HNIs who are mainly Wealthy Families, Individual and CXO level professionals & other professionals.
In one of the Supreme Court observed “Tax Planning may be legitimate provided it is within the framework of law. Colorable devises cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honorable to avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges.”
It is very clear that tax planning cannot be called a crime or an illegal activity or an immoral action as is wrongly considered by confused thinkers on the subject. What constitutes a crime is tax evasion and what is undesirable is tax avoidance but it is certainly desirable to engage in the exercise of tax planning.
Property Income Tax
Income from House Property, Commercial Property, Deductions, Exemptions, Tax Return Filings
Property tax is charged by the government on all tangible real estate that an individual owns. These real estate assets could include residential homes, office buildings and premises rented out to third parties. This is charged by local municipalities and is a small friction of the other taxes levied on Income from Property which is called as “Income from House Property” though it will includes Income from Commercial properties also.
Income from House Property covers the rent earned from the House property which is chargeable to tax. Sometimes, the owner may have to pay tax on ‘deemed rent’ in case the property is not let out or vacant. The income from house property would be taxable if it satisfies the essential conditions.
The Owner also pays Capital Gains Taxes upon Sale of the Property or alternatively avail some deductions and exemptions.
Capital Gains Tax-property
Computations, Tax Return Filings, Documentations, 15CA& CB
Capital gains shall be chargeable to tax if following conditions are satisfied:
a) There should be a capital asset. In other words, the asset transferred should be a capital asset;
b) It should be transferred by the taxpayer during the year;
c) There should be profits or gain as a result of transfer.
Capital Asset is defined to include any kind of property held by an assessee, whether or not connected with business or profession of the assessee.
If the Property is sold after holding it for a period of 24 months from its date of acquisition, then profit arising from the sale is called as Long term capital Gain. For Property held for less than 24 months will be classified as Short Term Gains and this will be taxed as normal Income.
Long Term Capital Gain is calculated on Property by reducing Indexed Cost of purchase and improvements & expenses incurred during Sale Transaction from the Sale Realization. Owner can reduce this tax by availing deductions and exemptions specified in Income Tax Act.
Capital Gains Taxation- Stocks and Mutual Fund
Computations, Tax Return Filings, Documentation, Accounts, Records,
Short-term capital gains and losses
If equity shares listed on a stock exchange are sold within 12 months of purchase, the seller may make short term capital gain or incur short-term capital loss.
There is a 15% tax on short-term capital gains that fall under Section 111A of the Income Tax Act. This includes equity shares, equity-oriented mutual-funds, and units of business trust, sold on a recognised stock exchange, and falling under the securities transaction tax (STT).
Unlisted Shares will be taxed as normal Income.
Long-term capital gains and losses
Long-term capital gains arising from transfer of listed equity share, or a unit of an equity oriented fund or a unit of a business trust as referred to in Section 112A shall be chargeable to tax at the rate of 10% in excess of Rs. 1 Lakh.
A method of determining the Cost of Acquisition (“COA”) of such investments has been specifically laid down according to which the COA of such investments shall be deemed to be the higher of-
1. The actual COA of such investments; and
2. The lower of-
· Fair Market Value (‘FMV’) of such investments; and
· the Full Value of Consideration received or accruing as a result of the transfer of the capital asset i.e. the Sale Price
Further, the FMV would be the highest price quoted on the recognized stock exchange on 31 January 2018. In case there is no trading of the said asset in such stock exchange, the highest price on a day prior to 31st January 2018 shall be considered to be the FMV. In effect, the taxpayer can claim the highest price quoted on the recognized stock exchange on 31 January 2018 as the COA and claim the deduction for the same.
Capital Gains Taxation- other assets
Computations, Tax Return Filings, Documentation, Accounts, Records
Short-term capital asset: An asset held for a period of 36 months or less is a short-term capital asset and any gain realised therefrom is taxed as normal Income
Long-term capital asset An asset that is held for more than 36 months is a long-term capital asset and any gain will be taxed @ 20%
Computations, Tax Return Filings, Documentation, Accounts, Records
Any income which is not chargeable to tax under any other heads of income and which is not to be excluded from the total income shall be chargeable to tax as residuary income under the head “Income from Other Sources”. They are normally Interest Income from Savings Account, Interest from Fixed Deposits, Dividends (in some cases), Lotteries, Gambling, Pensions (in some cases) Taxable Gifts etc.
Deductions & Exemptions
Tax Free Income, Deductions, Exemptions, Computations, Tax Return Filings, Documentation, Accounts, Records
There are some Deductions available under Chapter VI of IT Act. Major one are
Section 80C. Deductions on Investments in Life Insurance, FDs of 5+ years, PF,PPF,NSC up Rs. 1.5 lakhs
Section 80CCC – Insurance Premium Paid for Annuity Plan of LIC or Other Insurer Rs.1.50 lakhs
Section 80CCD – Pension Contribution Rs.1.50 lakh
Section 80 TTA – Interest on Savings Account Rs.10,000/- (Senior Citizens Rs.50,000/-)
Section 80 D –Mediclaim Premium Rs.50,000 (including Senior Citizen Parents)
Section 80 G –Donations made by Cheque or digital mode @ 50% subject to 10% of Gross Income
Exempt Income list can be viewed from Income Tax Department website.
Agriculture Income is one of the most talked about Income. Agriculture is a state subject and hence State Govt. has authority to tax.
Gifts those are exempt from tax
ü Gifts up to Rs 50,000 in a financial year are exempt from tax.
ü If you receive any property (movable or immovable) for inadequate consideration, the difference between the consideration and the stamp duty value would considered as a taxable gift.
ü Gifts from specified relatives are exempted, regardless of amount. These relatives are spouse, father, mother, brother and sister. They also include any lineal ascendant or descendant of the individual or his spouse as well as brother/sister of the spouse
ü Gifts given in contemplation of marriage of the recipient
ü Gifts given in contemplation of the death of the donor and gifts given under a will or inheritance
All kinds of gifts including cash, gold, real estate, paintings or any other valuable item are taxable subject to above points