1st Answer:
INTRODUCTION:
Section 80C of the Income Tax Act: Deductions under Section 80C are available for
individuals or HUF, not for any partnerships, or corporate bodies. According to this
section, a person or HUF can claim a deduction of up to 1.5 lakh rupees. There is no
minimum limit to claim this deduction. This section is subdivided into Section 80CCC
and Section 80CCD. In order to claim these deductions, the Income Tax Return (ITR) is
required to be filed by 31st July.
The amount claimed by an individual or HUF is required to be subtracted from the gross
total income so that taxable income can be calculated.
CONCEPT AND APPLICATION:
In order to get deductions under Section 80C of the Income Tax Act 1961, Ms. Dimple
may make investments in the following areas or contributions:
Investment in Public Provident Fund (PPF): PPF is a savings scheme by the
government along with the interest rate that is administered by the government
itself. Investment in Public Provident Fund can be done through banks and post
offices. The tenure of a Public Provident Fund is around 15 years and the returns
earned from a Public Provident Fund can be claimed as exemption from income
tax. For this deduction, the returns from PPF are required to be declared every
year while filing Income Tax Return. A maximum amount of Rs. 1.5 lakh can be
deposited. Any withdrawal is also exempted from tax. But, this withdrawal is only
supposed to be made in the 7th year only, after investing in 1st year.
Investment in Equity Linked Savings Scheme (ELSS): The mutual funds'
schemes that help a person or HUF in tax savings are known as Equity Linked
Savings Scheme (ELSS). The lock-in period for these funds is three years. As
the amount is invested in equities, the chances to gain more returns are high
along with greater risk (as compared to other investment schemes). An
investment of a maximum Rs. 1.5 lakh can be made and the returns (above 1
lakh rupees) are subject to 10% of long-term capital gain tax.
Stamp duty and charges at the time of registration for investment in a
home: After purchasing a house, the amount of money paid as stamp duty and
for registration of documents can be claimed by the individual or HUF as a
deduction under Section 80C of the Income Tax Act in the year when the
purchase is made.
Investment in National Savings Certificate (NSC): For tax saving and small
savings, NSC is used. That’s why it is a savings bond, which can be bought by a
person or HUF from a post office. The maturity period of a National Savings
Certificate is five and ten years. The interest received on the National Savings
Scheme can be claimed as deduction under Section 80C of Income Tax Act,
1961.
Investment in Senior Citizen Savings Scheme 2004 (SCSS): This scheme is
recently added in the list of investments for deductions under Section 80C.
Although it is the most profitable scheme, it is only applicable to senior citizens.
So, Ms. Dimple is eligible to invest in this scheme only if she is herself a senior
citizen or if there is a senior citizen in her house, she can invest in their name.
The age of that senior citizen is required to be 60 or above when the account is
opened. Also, any senior citizen who is 55 years or above and has retired under
SPL/VRS can open the account. It can be opened either individually or jointly
with the spouse. Any deposit that is made in the new accounts which are opened
on or after 8th December 2007 are eligible for deduction under Section 80C of the
Income Tax Act.
CONCLUSION:
Ms. Dimple can invest in any of the above-discussed investments or contributions from
the money earned through rental income from three house properties.
These investments help her to save tax or render small savings for a person or HUF.
And after reducing these deductions from her total gross income, her taxable income is
arrived at for tax payment.
2nd Answer:
INTRODUCTION:
Direct Tax: Tax that is levied on the total income of an individual or an organization is
known as a direct tax. It includes Income Tax (levied on the income of an individual from
sources like salary, interest, investments, etc.), Inheritance Tax (levied on any property
or asset inherited by an individual after death of the owner) and Corporate Tax (paid by
the corporate sectors or companies on the income earned by them), etc.
Indirect Tax: Tax that is levied on goods or services purchased by the consumers is
known as indirect tax. Indirect tax involves Excise duty (levied on goods manufactured
within the country), Customs Duty (levied on goods imported to a country which is paid
by the importer or exporter), etc. normally, the burden of indirect tax is passed on to the
customers.
CONCEPT AND APPLICATION:
Detailed differences between direct tax and indirect tax are as follows:
Meaning:
Direct tax is the tax that is levied on the income of an individual or an
organization.
Indirect tax is the tax levied on the purchase of goods or services by a consumer.
Nature:
Direct tax is said to be very progressive in nature. This is because these are
imposed on the individual’s income. There is no uniformity in the payment of
direct tax. This means that the direct tax depends on the income of a person or
an organization. Their tax rates are based on the tax rate slabs and have to pay
the tax as per the rate mentioned in the tax slabs. The wealthy people share the
burden of a major part of the taxes.
Indirect tax is regressive in nature, which implies that customers need to pay
indirect tax irrespective of their income. Whether the buyer is rich, middle class,
or poor, if they buy a particular good or service, they have to pay a same amount
of money as indirect tax on that particular product or service.
Inflation:
Direct tax is also used in order to curb or control inflation. When the inflation in an
economy increases at a point where it is uncontrollable, the government
increases the direct taxes. By doing so, they reduce the money sending in order
to cut down the demand for products and services, whereas, inflation is caused
due to indirect tax. This is so because indirect taxes are levied on the purchase
of goods and service and the amount is included in the MRP of the goods or
service. So, if the indirect tax increases, the price of goods or services
automatically increases.
Tax Burden:
Direct taxes are filed by an individual or organization solely. Therefore, the tax
burden falls only on them. For instance, income tax on earnings of Mr. Ram is
required to be paid by him solely and corporate tax on earnings of ABC Ltd. is
required to be paid the company itself. It is not possible to transfer the tax burden
to anyone, whereas, in indirect tax, the burden is transferred to the consumers.
The manufacturer or service provider is not required to pay the amount of indirect
tax themselves. Instead, they claim this amount from the ultimate consumers. For
example, GST is paid by the consumers, not by manufacturers of the goods.
Coverage:
Direct taxes do not cover a wide area because these taxes are paid by the
individuals or organizations when their income reaches a certain limit specified in
tax rate slabs. The individual or an organization earning the income has to pay
the direct tax, whereas, indirect taxes cover a large area. This is because indirect
taxes are transferrable which means that the tax burden is shifted to the ultimate
customer of the good or service.
Examples:
Direct tax: Wealth Tax, Income Tax, Corporate Tax, Inheritance Tax, Property
Tax, and so on.
Indirect tax: Central Sales Tax, Value Added Tax, Goods and Services Tax,
Service Tax, Excise Duty, Customs Duty, etc.
CONCLUSION: Once Mr. Vaishnav understands these differences between direct tax
and indirect tax, he will be able to start his business to manufacture sanitizers.
3rd Answer:
3a. INTRODUCTION:
Income from Business and Profession: Any income which is present in the profit or
loss account after considering allowed expenses is known as income from business and
profession. The income earned in the previous year is taxable by the assessee.
Here, business means an activity that is conducted and carried regularly with the motive
of earning a profit which includes trade, commerce, manufacturing activity, and so on.
Profession refers to a service provided by a person for their skills and knowledge.
According to Section 145, there are two methods of accounting the income from
business and profession namely, Cash System and Mercantile System.
CONCEPT AND APPLICATION:
While computing income from business and profession, certain deductions are not
admissible. These are future anticipated losses, loss on the sale of shares, losses
because of illegal trade practices, expenses that are not related to business, expenses
relating capital assets, and advance payment for starting a new business that is not
established till the date.
In order to calculate profits from business, profit and loss account is used. On the credit
side of the P&L Account, some incomes are tax-free and some are not. Similarly, there
are certain expenses where some part of the expense is subject to taxation.
The total income from business and profession is therefore added in the gross total
income in order to calculate the tax payable.
From the given information, we can compute the income from Business and Profession.
Calculation of Profits from Business and Profession
Income from Speculation business 85000
Less: loss from speculation business (50000)
Net income from speculation business (A) 35000
Income from Non-Speculation Business
Income from printing business 435000
-: loss from retail business (45000)
-: loss from discontinued business (10000)
Income from non-speculation business (B) 3, 80,000
Gains from Business and Profession = (A) + (B)
= 35,000 + 3, 80,000
= Rs. 4, 15,000
CONCLUSION:
The total income from the head business and profession is Rs. 4, 15,000 for the
assessment year 2020-2021.
b. Calculate income under the head of House Property, income from other
sources and capital gain
Answer:
Income from house property: This involves the rent earned by a person from a house
property that is chargeable to tax. If the given property is not rented out, then the owner
of the property has to pay the tax on the amount deemed to be received as rent.
Income from other sources: The income from all other sources which does not fall
under income from salary, income from house property or income from capital gains,
falls under the head Income from Other Sources. There are two main categories of
income, namely, recurring income and non-recurring income.
Income from capital gains: It refers to the positive value of the difference between the
sale price and the original price of the asset. It contains two types of capital gains, long-
term capital gains (the assets which are held for more than one year) and short-term
capital gains (the assets which are held for less than or equal to one year).
CONCEPT AND APPLICATION:
Now we will calculate income under the following three heads.
Calculation of Income from House Property
Gross Value Added 240000
(-): Municipal taxes -
Net Value Added 240000
(-): Standard Deduction u/s 24 @ 30% (72000)
Income from house property 168000
(-): loss from house property under (150000)
Construction in current year
Net Income from House Property (D) 18000
Calculation of Income from Other Sources
Winning from crossword puzzle 78000
Income from Other Sources (E) 78000
Calculation of Income under the Head Capital Gain
Short-term Capital Gain (F) 4500
Long-term Capital Gain 20000
(-): loss from long term (5000)
Net Long-term Capital Gains (G) 15000
Income from Capital Gains (H) = (F) + (G) 19500
Note: Long-term Capital Loss for Assessment year 08-09 shall not be set off since 8
years have already expired.
Total Income (C) + (D) + (E) + (H) = 415000 + 18000 + 78000 + 19500
= Rs. 530500
Calculation of Tax Payable
Tax on casual income on 78000 @ 30% 23400
Tax on remaining income on 452500 at slab rates 10125
33525
Add: cess 4% 1341
Total tax 34866
Round off 34870
CONCLUSION:
Net income from House Property is Rs. 18,000; income from other sources is Rs.
78,000 and income from Capital Gains in Rs. 19,500. Hence the total income from
business & profession, house property, other sources and capital gains is Rs. 5, 30,500.
