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Definitions of important terms

Definitions of important terms. Day 2 Session 1. Income . Income [Sec. 2(24)]

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Definitions of important terms

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  1. Definitions of important terms Day 2 Session 1

  2. Income • Income [Sec. 2(24)] • The definition of the term “income” in section 2(24) is inclusive and not exclusive. Therefore, the term “income” not only includes those things which are included in section 2(24), but also includes such things which the term signifies according to its general and natural meaning Slide 2.1

  3. Income • As per definition in section 2(24), the term “income” includes the following : • n Profits and gains . • n Dividend . • n Voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes or by an institution/fund referred to in section 10(21)/(23)/(23C)(iv)/(v). • n The value of any perquisite [see paras 51 and 52] or profit in lieu of salary . Slide 2.1

  4. Income • Any special allowance or benefit specifically granted to the assessee to meet his expenses wholly, necessarily and exclusively for the performance of his duties • Any allowance granted to the assessee either to meet his personal expenses at the place where he performs his duties or to compensate him for the increased cost of living. • n The value of any benefit or perquisite obtained from a company by a director or a person who has substantial interest in the company or by relative of a director or such person. Slide 2.1

  5. Income • Any sum chargeable to tax under section 28(v) (i.e., interest, salary, bonus, commission or remuneration due to, or received by, a partner of a firm—. • n Any sum chargeable to tax under section 28(iiia), (iiib) or (iiic) (export incentives) • n The value of any benefit or perquisite (whether convertible into money or not) obtained by any representative assessee [sec. 160(1)(iii), (iv)] or beneficiary, or any amount paid by the representative assessee for the benefit of the beneficiary (which the beneficiary would have ordinarily been required to pay). Slide 2.1

  6. Income • Any sum chargeable under section 28(ii), (iii), 41 or 59. • n The value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession. • n Any capital gains taxable under section 45. • n Insurance profit computed under section 44. • n Winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort Slide 2.1

  7. Income • Any sum received by the assessee from his employees as contribution to any fund for the welfare of employees. Contribution of the employees to various funds which are deducted by the employer from salaries or wages of employees will be taken as “income” of the employer. One may, however, claim deduction of the same under section 36 or 57 if such contribution is credited by the employer in the account of the employee in the relevant fund by the “due date”. • n Any sum received under a keyman insurance policy including bonus on such policy. Slide 2.1

  8. Income • Any sum received/receivable as specified in section 28(va) (i.e., any sum received for not carrying out any activity in relation to a business) [applicable with effect from the assessment year 2003-04]. Slide 2.1

  9. Business expenditure [Sec. 37(1)] Section 37(1) is a residuary section. In order to claim deduction under this section, the following conditions should be satisfied : @ The expenditure should not be of the nature described under sections 30 to 36. @ It should not be in the nature of capital expenditure. @ It should not be personal expenditure of the assessee. @ It should have been incurred in the previous year. @ It should be in respect of business carried on by the assessee. @ It should have been expended wholly and exclusively for the purpose of such business. @ It should not have been incurred for any purpose which is an offence or is prohibited by any law. Slide 2.1

  10. Wealth • Wealth means accumulated income • Net wealth - How computed [Sec. 2(m)] • The term “net wealth” means taxable wealth. Broadly speaking, it represents the excess of assets over debts. Assets include deemed assets but do not include exempt assets Slide 2.1

  11. Wealth • Assets [Sec. 2(ea)] • The term “assets” means the assets given in paras . • Guest house, residential house or commercial building [Sec. 2(ea)(i)] - The following are treated as “assets”: • 1. Any building or land appurtenant thereto whether used for commercial or residential purposes or for the purpose of guest house. • 2. A farm house situated within 25 kilometres from the local limits of any municipality (whether known as a municipality, municipal corporation, or by any other name) or a cantonment board. Slide 2.1

  12. Wealth • WHEN A GUEST HOUSE/RESIDENTIAL HOUSE/FARM HOUSE OR COMMERCIAL BUILDING IS NOT TREATED AS “ASSETS” - THE FOLLOWING ARE NOT INCLUDED IN “ASSETS” : • 1. Exception one - A residential house [Sec. 2(ea)(i)(1)] - A house if the following conditions are satisfied is not treated as “asset”— • a. it is meant exclusively for residential purposes ; • b. it is allotted by a company to an employee or an officer or a director who is in whole-time employment ; Slide 2.1

  13. Wealth 1. the gross annual salary of such employee, officer or director is less than Rs. 5,00,000 [the term “gross annual salary” is not defined ; as per common parlance it could mean salary, bonus, commission including dearness and other allowances (whether taxable or not), but excluding perquisites and before giving standard deduction]. 2. Exception two - A house held as stock-in-trade [Sec. 2(ea)(i)(2)] - Any house (may be residential house or used for commercial purposes) which forms part of stock-in-trade of the assessee is not treated as “asset” Slide 2.1

  14. Wealth 3. Exception three - A house used for own business or profession [Sec. 2(ea)(i)(3)] - Any house which the assessee may occupy for the purposes of any business or profession carried on by him is not treated as “asset”. 4. Exception four - A let out property [Sec. 2(ea)(i)(4)] - A residental property which is let out for a minimum period of 300 days in the previous year is not treated as an “asset”. 5. Exception five - A commercial complex [Sec. 2(ea)(i)(5)] - Any property in the nature of commercial establishments or complex is not treated as an “asset ” Slide 2.1

  15. Wealth 3 Motor cars [Sec. 2(ea)(ii)] - Except the following two, any other motor car is an “asset”: a. motor cars used by the assessee in the business of running them on hire ; b. motor cars treated as stock-in-trade. n For this purpose, “motor car” covers all motor vehicles other than heavy vehicles—Southern Roadways Ltd. v. CWT [2002] 122 Taxman 126 (Mad.). n In the case of a leasing company, motor car is an asset. Slide 2.1

  16. Wealth • Jewellery, bullion, utensils of gold, silver, etc. [Sec. 2(ea)(iii)] - Jewellery, bullion, furniture, untensils and any other article made wholly or partly of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals are treated as “assets”. Slide 2.1

  17. Wealth • Meaning of jewellery - For this purpose, “jewellery” includes the following : • a. ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stones, and whether or not worked or sewn into any wearing apparel ; • b. precious or semi-precious stones, whether or not set in any furniture, utensils or other article or worked or sewn into any wearing apparel. Slide 2.1

  18. Wealth • Stock-in-trade not an asset - Where any of the above assets (i.e., jewellery, bullion, utensils of gold, etc.) is used by an assessee as stock-in-trade, then such asset is not treated as “assets” under section 2(ea)(iii). • Gold Deposit Bonds are not asset - Section 2(ea) has been amended with effect from the assessment year 2000-01 to clarify that “jewellery” does not include the Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 notified by the Central Government. Slide 2.1

  19. Wealth • Yachts, boats and aircrafts [Sec. 2(ea)(iv)] - Yachts, boats and aircrafts (other than those used by the assessee for commercial purposes) are treated as “assets”. • Urban land [Sec. 2(ea)(v)] - Urban land is an “asset”. Slide 2.1

  20. Wealth • Meaning of urban land - Urban land means land situated in the following area : • a. in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or any other name) or a cantonment board and which has a population of not less than 10,000 according to the last preceding census of which relevant figures have been published before the valuation date ; or Slide 2.1

  21. Wealth • b. in any area within such distance (not being more than 8 kilometres) from the local limits of any municipality or cantonment board referred to above, as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify [Notification No. SO 871(E), dated November 9, 1993 - Taxmann’s Direct Taxes Circulars, Vol. 2, 2002 edition]. Slide 2.1

  22. Wealth • Urban land when not treated as asset - In the following cases land is not treated as “assets” : • 1. Land on which construction of a building is not permissible under any law for the time being in force in the area in which such land is situated. • 2. Land occupied by any building which has been constructed with the approval of the appropriate authority. Slide 2.1

  23. Wealth • 3. Any unused (i.e., not put to any use) land held by the assessee for industrial purposes for a period of 2 years from the date of its acquisition by him. • 4. Any land held by the assessee as stock-in-trade for a period of 10 years from the date of its acquisition by him. Slide 2.1

  24. Wealth • Cash in hand [Sec. 2(ea)(vi)] - The following is treated as “assets” : • Individual and Hindu undivided families • Cash in hand on the last moment of the valuation date in excess of Rs. 50,000. • Any other person • Any amount not recorded in books of account. Slide 2.1

  25. Why non taxable income • Although the predominant aim and object – a direct one – of enacting a tax statute is to find moneys for running the wheels of administration, a taxing statute, indirectly seeks to accomplish many other miscellaneous purposes and objects • A statute does not always proceed to charge and levy tax; it often leaves out and exempts certain persons, objects, transactions or effects from its pricks – and that with various considerations and results in mind Slide 2.1

  26. Why non taxable income • Receipts which are not the real income of the recipient should not bear tax e.g. • Leave Travel concession received by an employee 10(5), • House rent allowance received by an employee to the extent prescribed 10(13A). • Educational scholarships 10(16). Slide 2.1

  27. Why non taxable income • labour welfare of common men e.g. • Death-cum-retirement gratuity 10(10) • Commutation of pension 10(10A) • Leave encashment on retirement 10(10AA) Slide 2.1

  28. Why non taxable income • Government economy • Tax free interest on Government securities 10(15) • Income of certain local authorities 10(20) • Income of public charitable trusts 10(23B) Slide 2.1

  29. Why non taxable income • Government awards and rewards 10(17A) • Educational progress - Income of scientific research associations 10(21) etc • Amelioration of Scheduled Castes and Scheduled Tribes 10(26), (26A), (26B) • Charity Religious and charitable trusts 10(23BBA) & (23C) Slide 2.1

  30. Why non taxable income • To save from double taxation. • Share of Income received from HUF 10(2) • Share of Income received from partnership firm 10(2A) Slide 2.1

  31. Important Exemptions • Agricultural income [section 10(1)] • Receipts from a Hindu Undivided Family being paid out of family's income or in the case of an impartible estate belonging to family being paid out of such estate's income - 10(2) Slide 2.1

  32. Important Exemptions • Share of partner in total income of a firm, which is assessed separately as such. -10(2A) • Receipts being in the nature of casual and non-recurring nature not exceeding Rs. 5,000/- (Rs. 2500/- in the case of winnings from horse races, etc). - 10(3) Slide 2.1

  33. Important Exemptions • Interest on securities and bonds including premium on redemption of bonds by Non Resident as notified by Central Government. - 10(4)(i) • Interests on amounts in Non-resident (External) Account in any bank in India being maintained as per FERA, 1973 and rules thereunder by an individual. – 10(4)(ii) Slide 2.1

  34. Important Exemptions • Interest on specified Central Government's Savings Certificates which were subscribed to in convertible foreign exchange remitted from a country outside India as per FERA and rules thereunder by an individual citizen or a person of Indian Origin. - 10(4B) Slide 2.1

  35. Important Exemptions • Value of Leave Travel Concession or assistance not exceeding the amount actually spent. - 10(5) • Specified remuneration to a foreigner and non-resident individual for shooting of film in India who comes solely for such purpose. – 10(5A) Slide 2.1

  36. Important Exemptions • Death-cum-retirement gratuity payable to specified members of civil or defence services. - 10(10)(i) • Gratuity not exceeding Rs.3 ½ Lakhs payable under the Payment of Gratuity Act, 1972 - 10(10)(ii) • Any other gratuity not exceeding Rs. 2 ½ Lakhs received by employee on retirement or termination of his services or by legal heirs on death of employee limited to 15 days salary for each completed year of service. 10(10)(iii) Slide 2.1

  37. Important Exemptions • Receipt in respect of commutation of pension as per specified limits. - 10(10A) • Leave encashment not exceeding 8 months salary and subject to specified conditions & limits. - 10(10AA) • Compensation paid to employees on account of retrenchment under Industrial Disputes Act, 1947: Ascertainment of amount to be either minimum Rs. 50,000 or as per the said Act whichever is less. – 10(10B) Slide 2.1

  38. Important Exemptions • Receipt of amount on voluntary retirement upto Rs. 5,00,000 subject to specified scheme and guidelines and necessary approval. . – 10(10c) • Payment on a Life Insurance Policy, including bonus thereon but excluding therefrom amounts received u/s 80DDA(3). – 10(10D) • Receipt of Payment from Public Provident Fund or Statutory Provident Fund. – 10(11) Slide 2.1

  39. Important Exemptions • Payment to employee from recognised provident fund in respect of accumulated balance standing to the credit thereof. 10(12) • Receipt of Payment from Superannuation Fund subject to specified conditions and limits. - 10(13) Slide 2.1

  40. Important Exemptions • Special allowance to employee viz., house rent allowance. – 10(13A) • Special benefit to employees within meaning of s.17(2) subject to conditions stated therein. – 10(14) • Receipt of interest from public sector company in respect of bonds and debentures as notified. – 10(15)(iv)(h) Slide 2.1

  41. Important Exemptions • Receipt of interest from Government in respect of deposits made in its specified schemes from funds due on retirement. – 10(15)(i) • Scholarships granted to meet the cost of education – 10(16) • Daily allowances received by MPs, MLAs AND MLCs. – 10(17)(ii) Slide 2.1

  42. Important Exemptions • Income relating to minor child if clubbed u/s 64(1A) in the hands of the assessee not exceeding Rs.1,500 in respect of each minor child – 10(32) • Any income by way of dividends (whether interim or otherwise) declared, distributed or paid by a Domestic Company as referred to in section 115-O – 10(34) Slide 2.1

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