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Taxation
Management FIN 623
VU
MODULE
8
LESSON
8.35
INCOME
FROM BUSINESS & ITS
COMPUTATION
Methods of
Accounting
Under
section 32, a person's
income is to be computed in accordance
with method of accounting
regularly
employed
by such person.
Types of
Accounting Methods
(i)
Cash-Basis
accounting-Sec. 33
(ii)
Accrual-Basis
accounting Sec. 34
For
Companies Accrual basis
mandatory.
For
Others --- optional, cash or
Accrual Basis
Under
Cash-Basis
Accounting, a
person shall derive income when it is
received and shall
incur
expenditure when it
is paid.
Under
Accrual
Basis Accounting a
person derives income when
it is due to the person and
shall incur
expenditure
when it is payable by the
person.
Change
in the method of accounting after seeking approval
from commissioner Sec.
32(4)
Valuation
of Stock:
Cost
of stock-in-trade disposed of (consumed)
during the year shall be computed as
under.
A+B-C
A:
Opening stock
B:
Stock acquired during the
year
C:
Closing stock.
Records:
Kinds
of Record to Be Maintained
Records
of Money received &
expended
Sales
& purchases record
Assets
&Liabilities record
Stock
register
If
computerized system ---Electronic
receipts.
General
Instructions
Back
up system in place.
Security
Arrangements/system.
Record
to be maintained in line with
International Accounting
Standards.
To
keep record at specified
place.
Rates
of Tax for Individuals and
AOP 1st schedule.
For
Tax year 2007
Serial
No. Taxable Income
Rate
of Tax
1)
Where
the taxable income does not
exceed Rs
0%
100,000
2)
Where
the taxable income exceeds
Rs. 100,000 but
0.5%
does
not exceed Rs.
110,000
3)
Where
the taxable income exceeds
Rs. 110,000 but
1.00%
does
not exceed Rs.
125,000
4)
Where
the taxable income exceeds
Rs. 125,000 but
2.00%
does
not exceed Rs.
150,000
5)
Where
the taxable income exceeds
Rs. 150,000 but
3.00%
does
not exceed Rs.
175,000
6)
Where
the taxable income exceeds
Rs. 175,000 but
4.00%
does
not exceed Rs.
200,000
7)
Where
the taxable income exceeds
Rs. 200,000 but
5.00%
does
not exceed Rs.
300,000
8)
Where
the taxable income exceeds
Rs. 300,000 but
7.50%
does
not exceed Rs.
400,000
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Taxation
Management FIN 623
VU
9)
Where
the taxable income exceeds
Rs. 400,000 but
10.00%
does
not exceed Rs.
500,000
10)
Where
the taxable income exceeds
Rs. 500,000 but
12.50%
does
not exceed Rs.
600,000
11)
Where
the taxable income exceeds
Rs. 600,000 but
15.00%
does
not exceed Rs.
800,000
12)
Where
the taxable income exceeds
Rs. 800,000 but
17.50%
does
not exceed Rs.
1,000,000
13)
Where
the taxable income exceeds
Rs. 1,000,000 but
21.00%
does
not exceed
14)
Where
the taxable income exceeds Rs
1,300,000
25.00%
Rates
of Tax for Companies for Tax
Year 2007
Tax
Year
Banking
Company
Public
Company
Private
Company
other
than Banking
other
than Banking
Company
Company
2003
47%
35%
43%
2004
44%
35%
41%
2005
41%
35%
39%
2006
38%
35%
37%
2007
35%
35%
35%
In
case the taxpayer is a society or a
cooperative society, the tax shall be
payable at the rates
applicable
to a
public company or an individual,
whichever is beneficial to the tax payer.
Rate
of tax for a small company
shall be 20% of taxable
income.
Rate
of Dividend tax under
Section 5:
a) in
case, dividend received by a
public company 5% of gross amount
received.
or
insurance company or any
other resident
company.
b) in
any other case.
10% of
gross amount of dividend
received.
Rate
of tax on certain payments to Non-
Residents under Section
6:
Royalty or
fee for technical
services
15% of
gross amount received
Rate
of tax on shipping or Air Transport of
a
8% of
gross amount of dividend
received
non-resident
person
Shipping
income
8% of
gross amount received
Air
transport income
3% of
gross amount received
Deduction
of tax at source
Profit
on debt under section
151
10% of
profit paid
Prizes
and winnings under section
156
On a
prize bond
10% of
gross amount paid
On winnings
from raffle, lottery, prize
on
20% of
gross amount paid
winning
a quiz etc
Depreciation
(Sec.22) Third Schedule Part
1
Depreciation
rates specified for the
purposes of section 22 shall
be:
1.
Building (all types)
10%
2.
Furniture (including fittings)
and machinery
15%
and
plant (not otherwise
specified), Motor
Vehicles
(all types), ships, technical
or
professional
Books.
3. Computer
hardware including
printer,
30%
monitor
and allied items [machinery
and
equipment
used in manufacture of I.T.
products],
aircrafts
and aero engines.
64
Taxation
Management FIN 623
VU
4. In
case of mineral oil concerns the
income of
which
is liable to be computed in accordance
with
the rules of Part 1 of the fifth
Schedule.
a) Below
ground installations
100%
b)
Offshore platform and
production
20%
installations.
65
Table of Contents:
- AN OVERVIEW OF TAXATION
- What is Fiscal Policy, Canons of Taxation
- Type of Taxes, Taxation Management
- BASIC FEATURES OF INCOME TAX
- STATUTORY DEFINITIONS
- IMPORTANT DEFINITIONS
- DETERMINATION OF LEGAL STATUS OF A PERSON
- HEADS OF INCOME
- Rules to Prevent Double Derivation of Income and Double Deductions
- Agricultural Income
- Computation of Income, partly Agricultural,
- Foreign Government Officials
- Exemptions and Tax Concessions
- RESIDENTIAL STATUS & TAXATION 1
- RESIDENTIAL STATUS & TAXATION 2
- Important Points Regarding Income
- Geographical Source of Income
- Taxation of Foreign-Source Income of Residents
- Exercises on Determination of Income 1
- Exercises on Determination of Income 2
- SALARY AND ITS COMPUTATION
- Definition of Salary
- Significant points regarding Salary
- Tax credits on Charitable Donations
- Investment in Shares
- SALARY AND ITS COMPUTATION EXERCISES 1
- SALARY AND ITS COMPUTATION EXERCISES 2
- SALARY AND ITS COMPUTATION EXERCISES 3
- Tax treatment of Gratuity
- Gratuity Exercise
- PROVIDENT FUND
- Exemptions on Business income, Treatment of Speculation Business
- Deductions Allowed & Not Allowed
- Deductions: Special Provisions, Depreciation
- Methods of Accounting
- Taxation of Resident Company
- Taxation of Companies: Exercises
- Computation of Capital Gain
- Disposals Not Chargeable To Tax
- TAX RETURNS & ASSESSMENT OF INCOME UNIVERSAL SELF ASSESSMENT SCHEME
- Normal Assessment, USAS, Provisional Assessment, Best Judgment Assessment
- ADVANCE TAX COLLECTION & RECOVERY OF TAX PENALTIES & PROSECUTION
- What is Value Added Tax (VAT)?
- SALES TAX
- SALES TAX RETURNS