Sikkim Manipal University 3rd Semester Fall 2010

Name : Dilip Kumar. G

Roll No. : 520947355

Subject : Taxation Management

Subject Code : MF0003

Program : MBA Semester III

University : Sikkim Manipal

University

Learning Centre : Shrusti Info Systems

Vijayanagar (00038)

MBA – III SEM

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Taxation Management – MF0003

SET - 1

Q. 1. Make a study of various exemptions available under section 10.

Answer: An assessee need not pay tax on all his incomes. Some of his incomes are
exempt from tax. Such incomes are called incomes exempt from tax or tax-free
incomes. Tax-free incomes are covered by Section 10 of the Income-tax Act.

The various incomes exempt from income-tax are:

Sec. 10(1):- Agricultural income is exempt from income-tax. In some cases

agricultural income is taken into consideration to find out tax on non- agricultural
income.

Sec. 10(2):- any sum received by a member of the Hindu undivided family either out
of the income of the H.U.F. or out of the income of the estate belonging to the H.U.F.
is fully exempt from income-tax. Such receipts are not taxable in the hands of an
individual member, even if they have not been taxed in the hands of the H.U.F.

Sec. 10(2A):-The share of income of a partner in the total income of the firm, which
is separately assessed to tax, is fully exempt from tax.

Sec. 10(5):- Leave travel concessions.

Sec. 10(7):- Any allowance paid or allowed outside India by the Govt. to an Indian
citizen for rendering service outside India is wholly exempt from tax.

Sec. 10(10):- Gratuity;

Sec. 10(10A), 10 (AA):- Pension and leave salary;

Sec. 10(10B):- Retrenchment compensation;

Sec. 10(10C):- Compensation received at the time of voluntary retirement;

Sec. 10(10CC):- Tax on perquisite paid by the employer;

Sec. 10(10D):- Amount paid by life insurance companies;

Sec. 10(11), (12), (13):- payment from provident fund, superannuation fund;

Sec. 10(13A):- House rent allowance;

Sec. 10(14):- Special allowance;

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Sec. 10(15):- Interest on securities;

Sec. 10(16):- Educational scholarships;

Sec. 10(17):- Daily allowance to Members of Parliament;

Sec. 10(17A):- Scientific and artistic work awards instituted by the Central
Government or by any State Government are exempt from Income-tax.

Sec. 10(18), (19):-

i. Pension received by an individual who has been in the service of the Central
or State Government and has been awarded “Param Vir Chakra” or “Maha Vir
Chakra” or “Vir Chakra” or such other gallantry award as the Central
Government may, by notification in the official gazette, specify in this behalf,
and

ii. Family pension received by any member of the family of such individual, will
be exempt from tax.

Sec. 10(31):- Subsidy received by an assessee engaged in the business of growing

and manufacturing rubber, coffee, cardamom or such other plantation crops as may
be notified by the Central Government is exempt from tax, provided the subsidy is
received from the concerned Board, it (i.e., the subsidy) is used for re plantation or
replacement of rubber plants, coffee plants or cardamom plants or for rejuvenation or
consolidation of areas, and the assessee furnishes to the assessing officer, along
with the return of income, a certificate from the concerned Board stating the amount
of subsidy received during the previous year.

Sec. 10(32):- Income of minor child included in the income of individual is exempted
up to Rs. 1,500 in respect of each such minor child or income of such minor child
whichever is lower.

Sec. 10(33):- Capital gains on the transfer of US64

Sec. 10(34), (35):- Income by way of dividends from domestic company or any
income from the units of Unit Trust of India, and the income received from the units of
mutual funds specified under Section 10 (23D) of the Income-tax Act are exempt
from tax.

Sec. 10(37):- Capital gain on compulsory acquisition of urban agricultural land: only
to individuals and HUFs. Provided such agricultural land was used by the assessee
(or by his parents) for agricultural purposes during 2 years immediately prior to
transfer.

Sec. 10(38):- Long term capital gains on transfer of listed equity shares/ units
covered by securities transaction tax.

Exemptions U/s 10A, 10AAA, 10B:-

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Newly established under takings in Free trade zone: Electronic hardware Technology
Park or software Technology Park, special economic zone Sec. 10A

Subject to the fulfilment of certain conditions the profits and gains calculated as
below is allowed to be deducted from his total income for a period of 10 consecutive
assessment years beginning with the assessment year relevant to the previous year
in which the undertaking begins to manufacture or produce such articles or things or
computer software.

Newly established units in Special Economic Zone: Sec. 10AA:-

Income from export of articles or thing or from services from such unit is deducted to
the following extent, subject to the fulfilment of certain conditions. 100% of the profit
is deductible for a period of five assessment years, 50% for next five assessment
years.

Newly established 100% export oriented undertakings: Sec. 10B:-

Undertakings approved by the Board, is eligible for the deduction for a period of 10
consecutive assessment years beginning with the assessment year relevant to the
previous year in which the undertaking begins to manufacture or produce such
articles.

Q. 2. What are the deductions available from gross salary income.

Answer: After computing the income under each head separately, the incomes of the
various heads are added together. The total of incomes of the various heads is called
Gross Total Income. From the gross total income, certain allowable deductions are
made. The purpose of these deductions is to encourage savings, industrialization
and to assist tax payers in meeting their essential expenditures.

The deductions from gross total income are allowed:-

(i) In respect of certain investments and payments made by the assessee and

(ii) In respect of certain incomes received by the assessee

The deductions from gross total income are provided in Sections 80CCC to 80U. i.e.,
under Chapter VI-A of the income-Tax Act of 1961.

As per Section 80A of the Income-tax Act, the aggregate (i.e., total) amount of
various deductions from gross total income allowed in Section 80 CCC to 80U should
not exceed the gross total income. (i.e. G.T.I. after excluding long-term capital gains,
short term capital gains taxable u/s 111A, winnings from lotteries, races etc.)

Deductions u/s 80C:-

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Deductions under Section 80C:- Deductions in respect of certain investments

made or certain payments, deposits made

Eligible Investments, Contributions and Payments:-

Life Insurance Premium:- Premium paid for insurance on his own life or on the life
of his wife or her daughter, or his or her child (minor or major) of any status including
married daughter.

1. Condition: The qualifying amount of any premium or other payment made on an

insurance policy shall not exceed 20% of the actual capital sum assured.

2. Payment made for a contract of deferred annuity

3. Deduction from the salary payable to a government servant by the government –

securing to him a deferred annuity (should not exceed 1/5th of salary)

4. Contribution to the Statutory Provident Fund, Public Provident Fund or to a

Recognised Provident Fund and to an Approved Superannuating Fund.

5. Purchase National Savings Certificates VIII Issue (Interest accrued on VIII Issue is
deemed to have been re-invested)

6. Contributions towards Unit Linked Insurance Plan, (ULIP) of the UTI and of LIC
Mutual Fund (notified)

7. Any sum paid annuity plan of LIC or any other insurer

8. Subscription to any notified units of any Mutual Fund or UTI

9. Contribution to any pension fund set-up by any Mutual Fund or by the UTI

10. Subscription to Home Loan Account or contribution to pension fund set-up by the
National Housing Bank.

11. Any subscriptions to any scheme PSU engaged in Long term financing of
acquisitions and constructions of residential houses

12. Tuition fees paid other than donations for full time education (max: two children)

13. Any payment made towards any loan taken to meet the cost of purchase or
construction of a new residential house

14. Amount invested in approved debentures and equity shares of PSUs engaged in
infrastructure facilities including power sectors or subscription of Units of MFs
proceeds of which are invested in infrastructure facilities

Deduction in respect of contribution to certain Pension Funds (80CCC):-

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It is allowed in respect of any amount paid or deposited in the P. Y. for an annuity

plan of LIC or any other insurer (approved by IRDA) for receiving pension

The contribution made by the central government to the account of an

employee under a pension scheme referred to in Section 80CCD:-

Section 80CCD is applicable if the following conditions are satisfied

Eligible Assessee:- Individual.

He is employed by the central Government on or after 1 – 1 – 2004

Amount should be deposited any amount in his account under a pension scheme
notified by the central Government during the P. Y.10% of employee’s contribution
(to the extent of Basic Pay + D. A. given in terms of employment) to the above
scheme is deductible 10% of Contribution by the Central Government to the above
scheme is deductible in the year in which the contribution is made Note: In both the
cases the contribution amount should not exceed 10% of salary

Deduction in respect of Medical Insurance Premium [Sec 80D]:-

Eligible Assessee:- Individual and HUF.

Deductible amount:- the maximum deductible amount is Rs.10, 000, or actual

amount paid whichever is less (In case of senior citizen it is Rs. 15,000)

Certain conditions:-

(i) Premium must be paid by cheque (Cash not allowed)

(ii) The medical insurance scheme of GIC (Ex: Mediclaim Policy) or any other
scheme approved by the Central Government or IRDA

(iii) Insurance on his health or on the health of his spouse or parents or dependent
children.

Deduction in respect of maintenance including Medical treatment of a,

handicapped Dependant (Sec. 80DD):-

Eligible Assessee:- Resident individual and HUF.

Quantum of Deduction: For disability fixed sum of Rs. 50,000 irrespective of the
amount incurred or deposited further in case of a dependent with severe disability
(80% disability or more) the deduction shall be Rs. 75,000.

Note: If deduction u/s 80U is claimed no deduction is available under section 80DD

Deduction in respect of Medical Treatment, etc. (Sec. 80DDB):-

Eligible Assessee: Individual and HUF

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Deductible amount:

i) Amount paid or Rs. 40,000, whichever is less

(ii) Where the payment is in relation to a senior citizen the deduction shall be amount
paid or Rs. 60,000, whichever is less.

Note: However, the deduction shall be reduced by the amount received, if any, by
under an insurance from an insurer or reimbursed by the employer for the medical
treatment of person mentioned in this section.

Specified Diseases:- Neurological diseases, cancer, AIDS, chronic renal failure,

Haemophilia etc

Deduction in respect of interest of loan taken for Higher Education (Sec. 80E):-

Eligible Assessee:- Individual

An individual is entitled to a deduction of amount paid by him in previous year by way

of repayment of loan (including interest) taken by’ from any financial institution or an
approved charitable institution for t purpose of pursuing his higher education
Conditions:

(i) The repayment should be done out of his income chargeable to tax.

(ii) The deduction will be allowed for the previous year in which the assessee starts
repaying the loan.

The deduction is available for a maximum period of 8 years till the loan together with
inter thereon is fully paid (whichever is earlier) by the assessee.

Only interest is allowed not repayment of any instalments

Deduction in respect of donations to certain Funds, Charitable institution, etc.

(Sec. 80G):-

Eligible Assessee: All Assesses

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(A) No limit donations where deduction is allowed @ 100% are as under:-

(1) The National Defence Fund;

(2) The Prime Minister’s National Relief Fund;

(3) The Prime Minister’s Armenia Earthquake Relief Fund;

(4) The Africa (Public Contributions-India) Fund;

(5) The National Foundation for Communal Harmony;

(6) A University or Educational Institution of national eminence (approved);

(7) The Maharashtra Chief Minister’s Relief Fund;

(8) Zilla Saksharata Samitis constituted in any district;

(9) The National Blood Transfusion Council;

(10) Any Fund set-up by State Govt. to provide medical relief to the poor;

(11)The Central Welfare Fund of the Army and Air Force and the Indian Naval
Benevolent Fund;

(12) The Andhra Pradesh Chief Minister’s Cyclone Relief Fund;

(13) The National illness Assistance Fund;

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(14) The Chief Minister’s Relief Fund or the Lt. Governor’s Relief Fund;

(15) National Sports Fund;

(16) National Cultural Fund;

(17)The Fund for Technology Development and Application set-up by the Central
Government; or

(18)Any fund set-up by the State Government of Gujarat exclusively for providing
relief to the victims of earthquake in Gujarat;

(19)The National Trust for welfare of persons with Autism, Cerebral Palsy, Mental
Retardation and Multiple Disabilities.

(B) No limit donations where deduction is allowed @ 50% are as under:-

(1) Jawahar Lal Nehru Memorial Fund;

(2) Prime Minister’s Drought Relief Fund;

(3) National Children’s Fund;

(4) Indira Gandhi Memorial Trust;

(5) Rajiv Gandhi Foundation.

(C) With limit donations where deduction is allowed @ 100% of qualifying

amount are as under:-

(1) The Government or to any local authority, approved association or institution as

for the purpose of promoting family planning.

(2) Sums paid by a company to the Indian Olympic Association or any other
Association for sponsorship of sports and games in India.

D) With limit donations where deduction is allowed @ 50% of qualifying:-

l) The Government or any local authority to be utilized for any charitable purpose

2) Any authority constituted in India for providing housing accommodation or for the
purpose of planning development or improvement of cities, towns and villages or for
both

3) Any authority created under any law exclusively for the purpose of satisfying the
need of

i. Housing accommodation.

ii. Planning, development and improvement of cities, towns and villages

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4) Any corporation established by the Govt for promoting the interests of the
members of a minority community; or

5) The sums paid for the renovation or repair of any temple, mosque, gurudwara,
church or any other place which is notified by the Central Government in the Official
Gazette to be of historic, archaeological or artistic importance or to be a place of
public worship of renown throughout any State or States.

Conditions for allowing deduction under this section:-

i) Donations should be in cash, not in kind.

ii) Donation should not be given for the benefit of any particular religion, class, creed,
community, etc. Donation given for the benefit of scheduled castes, scheduled tribes,
backward class or women o children are not for any particular religious community or
caste.

Deduction in respect of Rent Paid [80GG]:-

Eligible Assessee: Individual and HUF

An employee who is not in receipt of house Rent Allowance (H R A) from his

employer during the previous year or an individual who is a self employed

Least of the following amounts shall be allowed;

(i) Excess of rent paid over 10% of Total Income;

(ii) 25% of Total Income; or

(iii) Rs. 2,000 p.m.

The total income for this purpose means Gross Total Income minus the deductions
allowable u/s 80C to 80U (except u/s 80GG)

Deductions for scientific research or Rural development [80GGA]:-

Eligible Assessee: All Assessees

Deductible amount: 100% of such donation.

Deductions in respect of contributions given by any person to political parties:

80GGB:-

Only to a company – entire amount is exempt from tax

Deductions in respect of contributions given by any person to political parties:

80GGC:-

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Available to all assessees other than a local authority and any authority or
organisation or person funded by the government– entire amount is exempt from tax.

Q. 3. Find out GAV from the following details.

A B C
Municipal Value 8,000 16,000 19,000
Fair rent 10,000 18,000 14,000
Standard rent 12,000 20,000 15,000
Rent per month 1500 1800 1200
Vacancy period 1 2 4

Answer:

Particulars A B C
Municipal Valuation & Fair Rental Valuation 8000 16000 19000
10000 18000 14000
Whichever is higher & Standard Rent 10000 18000 19000
12000 20000 15000
Whichever is lower & Actual Rent 10000 18000 15000
18000 21600 14400
Whichever is Higher 18000 21600 15000
Less: Vacant Period 1500 3600 4800
Gross Annual Value 16500 18000 10200

Workings for Vacancy Period: - A - 1500 X 12 = 18000.

18000 / 12 X 1 = 1500.

B - 1800 X 12 = 21600.
21600 / 12 X 2 = 3600.

C - 12000 X 12 = 14400.
14400 / 12 X 4 = 4800.

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