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Income Tax

Income earned by the entities within the jurisdiction of government of India is taxed under Income Tax.Income tax in India is governed by the Income Tax Act 1961 (“the Act”) and income tax rules as amended from time to time.Income tax is a charge on annual income subject to certain deductions. Every business entity is required to file an income tax return in India providing all the details of income earned within the prescribed due dates.

Our team of experts at Business Escalators is technically competent and proficient in filing income tax returns. We optimize your tax saving and provide assistance for appropriate tax planning. There is a fine line between tax evasion and tax saving, we help you to draw the line and deal with income tax in the most ethical way.

File your income tax return with us in the most seamless way and get year round support and assistance.

Financial Year / Assessment Year

  • We often get confused with the words financial year, previous year and assessment year. Let us help you resolve this dilemma.
  • Financial year, also can be termed as previous year is the year in which entities earn the income. In India a financial year generally starts from 1st April and ends on 31st March.
  • Assessment year is the year in which income earned by the entities in previous year is offered to tax. It succeeds a financial year.
  • An entity has to file the income tax return in the assessment year for the income earned in the financial year.
  • Let us understand the above with following example:
    If the Financial Year (F.Y.) or Previous Year (P.Y.) is 2018-19 then the Assessment Year (A.Y.) shall be AY 2019-20. The entity carrying its operations and earning income in the Financial year has to file its income tax return in the assessment year following it.

Income is taxed under the following five heads under Income Tax Act

1. Income from Salary

When a person performs work or services under certain conditions in return for remuneration, such remuneration may be treated as income from head salary. There are various components of salary such as wages, annuity, pension, gratuity, allowances, perquisites, bonus, commission, fees, advance etc.

However, not all the components forming part of your salary structure are taxable. You can claim deductions against your salary components. Following are the few most common deductions:

  • House Rent Allowance:House rent allowance is an allowance provided by the employer to cover the stay expense of their employee. Many a times we see people migrate to different places for employment. In order to provide a compensation for such expense employers provide this allowance to their employees in their salary.
  • Conveyance Allowance:This allowance is provided by the employers to cover the cost of travelling to work place. You can claim a deduction of INR 1600/2400 subject to certain criteria.
  • Medical Allowance/Reimbursement: One should be very careful while choosing this allowance. If your salary component is Medical Allowance then it is 100% taxable and no deduction against the same can be claimed. But if your salary component reads as Medical Reimbursement then you may submit your medical bills
  • to the employer and it is upto the discretion of your employer whether to exempt the same. However, maximum deduction of INR 15,000/- can be claimed and it is mandatory to submit the bills to your employer, also only if he chooses to exempt the deduction you may get this benefit.
  • Leave Travel Concession: Similar to medical reimbursement, this allowance can be exempt if you submit your travel fare receipts/bills to the employer. However, not all your travel expenses are exempt but it is subject to certain conditions. But as discussed for Medical Reimbursement, this allowance can be exempt only at your employer’s discretion and submitting of bills with your employer within prescribed time is mandatory.

Apart from these the allowances you receive at the time of switching jobs or retirement such as Gratuity, Pension, Leave encashment, etc. can also be exempted subject to fulfillment of certain conditions.

Employer also reduces certain amount from your salary which is statutory in nature. The most common reductions are Provident Fund (PF), Employment Tax/Profession Tax (PT) and Tax Deduction at Source (TDS).

You get a benefit of these reductions in your Income tax return. Provident Fund can be claimed as deduction under section 80C, Profession Tax can be claimed as deduction from your salaried income and TDS deducted can be adjusted against your income tax payable.

Documents to be provided to file salaried return

  • Form 16 as provided by the employer. In case you have worked with more than one employer, all the Form 16 as provided by the employers
  • Salary slips. In case of change of salary during the year, salary slips before and after such change needs to be provided
  • Rent receipt, in case you are staying in a rented premise and want to claim HRA/80GG deduction benefit
  • Bank statement
  • Income tax efiling portal’s login ID and password, if already created by you

2. Income from House Property

House property includes a flat, apartment, house, office, shop, building or land attached to such building whether commercial or residential. Following conditions define whether income you earn from the house property is taxable under this head of “Income from House Property”

  • The House Property should be owned you – whether jointly or separately as sole owner
  • The house property should not be used for the purpose of business or profession carried on by you

House Property can be of following types:


A) Self-occupied House Property: It is used for one's own residential purpose which means no income is generated from such house property.


Income: NIL

Deductions:

  • Interest on Housing Loan: If loan is taken against such property, interest component can be claimed as deduction. However there is a ceiling limit to such deduction i.e. INR 2,00,000. Also the principal repayment of such housing loan can be claimed as deduction under section 80C in your income tax return.


B) Let out house property: It is rented for the whole or part of the year. Rent received from such property is offered as income.


Income:

  • Rent received. However this is subject to certain conditions

Deductions:

  • Municipal Taxes: Municipal taxes paid to local bodies can be reduced from such rental income.
  • Standard Deduction: The Income Tax Act also allows 30% deduction from rental income towards the house maintenance cost. This 30% deduction is a standard deduction irrespective of the actual amount spent on maintenance. Your actual maintenance cost can be less than the 30% amount or more but the Income Tax Act has standardized this amount to 30% of rental income as reduced by municipal taxes.
  • Interest on Housing Loan: Further one can also take interest on housing loan benefit. Similar to self occupied house property, there is an overall ceiling limit of INR 2,00,000 than can be claimed as deduction.

C) Deemed to be Let Out: In case you own more than one house property, then only one house property can be shown as self occupied. Even if the other properties are vacant or occupied by your family, it is mandatory as per the Income Tax Act to show the other houses as deemed to be let out and offer some notional rent to tax.


Income:

  • Notional rent. This is subject to certain conditions and estimations

Deductions:

  • Municipal Taxes: Municipal taxes paid to local bodies can be reduced from such notional income.
  • Standard Deduction: Similar to Let out House Property, there one can claim standard deduction of 30% towards maintenance cost.
  • Interest on Housing Loan: Interest on housing loan benefit can also be claimed. There is an overall ceiling limit of INR 2,00,000 than can be claimed as deduction.

Yes! We do agree with your thoughts, Income Tax rules can be real harsh at times. But we at Business Escalators are determined to simplify your taxes and aim at maximizing your tax saving. Contact our team for tax planning and saving.

Treatment of excess Interest paid over the ceiling limit:

From the Assessment Year 2018-19, there is an overall ceiling limit on housing loan interest deduction that can be claimed. The ceiling limit of INR 2,00,000 is an overall limit for all house properties and not individually for each property. Hence if you are paying an interest of more than INR 2,00,000 whether for one house property or if the multiple house properties you own are loaned and the overall interest you pay exceeds INR 2,00,000 then the excess interest over INR 2,00,000 can be carried forward in future years and you can claim the benefit of this interest against your future income from house property. However one cannot carry forward the excess interest benefit for infinity! The government surely can’t be this liberal. You can enjoy this benefit for 8 years.

Not sure of how to exactly take this benefit? You are at the right place! Contact us for detailed understanding and advisory.

Documents to be provided for Income from House Property

  • Rent Agreement/Rent receipts issued to the tenant, in case of let out house property
  • Approximate rent in the area where your house property is situated
  • Index II for ownership details
  • Interest certificate in case there is an housing loan for house property
  • Bank statement for rent credits/housing loan repayment debits
  • Municipal taxes paid receipt

3. Profit & Gain Business or Profession

Profit and loss of all types of business and profession are covered under this head. Also intra day share trading is treated as business income and taxed under this head. This is irrespective of whether you are trading as an investor or a whole time trader. Trading in future and option is also taxed under this head.

You can claim deduction of expenses incurred to carry on trade or profession. Depreciation on assets is an allowable deduction under income tax. Even if you miss to claim depreciation in your income tax return, the benefit of depreciation will be auto considered by the department.

Presumptive Taxation under the Income Tax Act

For small entities many a times compliances becomes a hindrance to growth and success. In order to give relief to such businesses The Income Tax Act allows minimal compliances to such entities. If your turnover is within the prescribed limit then The Act exempts you from maintaining of proper books of accounts. Also profit at a fixed percentage can be offered to tax irrespective of the actual computation of profit.


Presumptive taxation in Case of Business Presumptive taxation in Case of Profession
Gross Turnover/Sales upto INR 2,00,00,000 can opt for presumptive taxation Gross recipts from profession upto INR 50,00,000 can opt for presumptive taxation
Profit is computed at 8% of such turnover/sale. In case where receipts are through banking channel then profit can be computed at 6% of such turnover/sales Profit is presumed to be 50% of such gross receipts
  • Once opted for presumptive taxation it is mandatory to offer business income under presumptive taxation for a continuous period of 5 years.
  • In case one switches out from presumptive taxation, he/she cannot opt presumptive taxation for a period of next 5 years
  • Individual, HUF and partnership firm (except LLP) can opt for presumptive taxation
  • In case one wants to declare profit below the prescribed percentange, it is mandatory to get audit done from practicing Chartered Accountant in India
  • The prescribed percentage is the minimum rate, however one can show profits at higher rates as well

Mandatory Audit under Section 44AB of the Income Tax Act

As per the Income Tax Act, it is mandatory to get your books of account audited by a practicing Chartered Accountant in India in the following cases:

  • If your gross turnover or sales exceed INR 1,00,00,000
  • If your gross receipts from profession exceed INR 50,00,000
  • In case you have opted for presumptive taxation and want to show profit less than the prescribed limit.

We have a qualified team of Chartered Accountant with us for smooth and hassle free conduct of Income Tax Audit. For all the related queries and assistance, contact our team of experts.

  • Sale, purchase, expenses bills and invoices
  • Tally Backup, if maintained
  • Fixed Asset bills/invoices
  • OD/Loan statements
  • Data of return filed under any other laws such as GST, PT, etc.
  • Income tax efiling portal’s login ID and password, if already created by you


4. Capital Gain

Resultant profit or loss from sale of capital assets such as real estate (land, building, house property), shares, securities, bonds, jewellery, etc. when the sale price is reduced by the purchase price is taxed under the head Capital Gain. Such resultant profit or loss is offered to tax in the year of sale of asset.

The taxation of capital gain depends upon the type and nature of asset whether short term or long term. Following is a small brief of capital gain taxation


Asset Type Short Term Asset Long Term Asset
Period of Holding Income tax rate Period of Holding Indexation benefit Income tax rate
Shares & Securities of listed company – STT paid 12 months or less 15% More than 12 months No Exempt. (However from AY 2019-20 it is
exempt only upto INR 1,00,000 after which it shall be taxable)
Shares & Securities of unlisted company – STT not paid 24 months or less As per income tax slab rates More than 24 months No 20%
Immovable Assets – Land or Building 24 months or less As per income tax slab rates More than 24 months Yes
No
20%
20%
All other assets Upto 36 months As per income tax slab rates More than 36 months Yes
No
20%
20%

The expenses made at the time of sale and purchase of capital asset can be reduced from capital gain computation.

Also capital gain can be exempt subject to certain investments. If one makes eligible investments as per section 54 of the Income Tax Act, then part or entire capital gain can be exempted subject to fulfillment of prescribed conditions.

For further assistance in capital gain computation reach us at our registered helpline number or email id for quick and prompt services.

We have a qualified team of Chartered Accountant with us for smooth and hassle free conduct of Income Tax Audit. For all the related queries and assistance, contact our team of experts.

Documents to be provided in support of capital gain transaction

  • In case of immovable property – Sale and purchase deed of property or Index II of sale and purchase. Bills/receipts relating to sale and purchase expenses
  • In case of transactions in listed shares or securities – Trading profit and loss account as issued by broker. It should contain details such as sale and purchase date, price, quantity, brokerage etc.
  • In case of other assets, sale and purchase proofs and details such as receipts/invoices/bills etc.
  • Bank statement
  • Investment proof to claim section 54 deduction such as Index II of house property which is brought through capital gain proceeds or bond purchase receipts, etc.

5. Income From Other Source

This is the residual head of income. Income which are not specifically taxed under any other head are covered here. One can claim deduction of expenses incurred to earn such income.

A few incomes taxed under this head and documents needed in support of such income are as follows:


Income Documents
Interest income Interest certificate as issued by bank / Form 16A
Savings bank interest Bank passbook or statement/ Interest certificate
Dividends Communication received via emails/ bank statement
Gifts received Gift deed/ bank statement/ Transfer deed/ Any other proof
Income from letting out of plant, machinery, furniture, motor car Invoice/bill raised/ bank entry
Commission income Form 16A/ bank entry

Let us help you identify the right head under which income is to be taxed. File your return with us for timely and appropriate compliances.

The summation of all the above income as taxed under various different heads amounts to Goss Total Income. Income tax allows entities to claim certain deductions against their Gross Total Income. This benefit of claiming deductions is offered by the Government to encourage and promote savings among all. Following are a few most common deductions claimed

Important Deductions under Chapter VIA of the Income Tax Act

  • Investment under Section 80C
    It includes payment made towards LIC premium, contribution towards PPF, EPF, Equity linked savings scheme (ELSS), principal repayment of housing loan, Five years time deposit or fixed deposit, National Savings Certificate, tuition fees, etc. There is a ceiling limit on amount of deduction that can be claimed under this section of “The Act” which is INR 1,50,000/-

Documents required to claim benefit of this deduction

  • LIC Premium
  • PPF/EPF
  • Principal of Housing loan
  • ELSS
  • 5 Year Time Deposit/FD
  • National Savings Certificate
  • Tuition Fees
  • Any other
  • Premium Receipt
  • PF statement
  • Housing loan interest certificate or Housing loan statement
  • Statement from Broker/Bank
  • FDR or Statement
  • Acknowledgment/Certificate of investment or bank entry
  • Receipt
  • Receipt/Bank entry/Any other proof
  • Section 80D
    It covers the payment made towards health insurance premium for self, spouse, children or parents. Deduction of INR 25,000 can be claimed in case of premium paid for self, spouse or children. One can claim INR 30,000 in case the tax payer is a senior citizen. Additional deduction of INR 30,000 in case premium paid towards senior citizen parents. Deduction upto INR 5,000 for preventive health checkups is also allowed but it is included in the ceiling limit of INR 25,000/30,000
    Document required to claim benefit of this deduction
    Education loan statement or Interest certificate as issued by Bank
  • Section 80GG
    This deduction can be claimed in respect of house rent paid when HRA is not received. This deduction is available to all the individuals not having a self occupied property owned either by self, spouse or minor child at the place of employment and should live in a rented premise.
    Documents required to claim benefit of this deduction
    1. Rent receipt/Rent Agreement
    2. Details of the owner
  • Section 80E
    It allows deduction to an individual for interest on loan taken for pursuing higher education. Loan can be taken in respect of self, spouse, children or person to whom tax payer is a legal guardian. This deduction can be claimed for maximum 8 years (from year in which interest repayment begins)
    Document required to claim benefit of this deduction
    Education loan statement or Interest certificate as issued by Bank
  • Section 80G
    Deduction in respect of donations made to specified entities can be taken upto 50% or 100% of amount paid. Cash donations above INR 2,000 are not allowed as deduction. It is mandatory to provide the details of organization to whom donation is made in the income tax return such as Name, Address, PAN, etc.
    Document required to claim benefit of this deduction
    Donation receipt
  • Section 80TTA
    This is a deduction in respect of interest of savings bank account. Saving bank interest upto INR 10,000 can be exempted under this section. Both individual and HUF are eligible for such deduction.
    Document required to claim benefit of this deduction
    Bank statement/Interest certificate

Exempt Income:

Not all income you earn are taxable under the Income Tax Act. There are certain incomes which do not form part of your total income and are tax free. However, it is essential to disclose such income in your income tax return even if they are exempt. There is a separate heading in the Income tax return under which you need to disclose your exempt income. Following are few examples of income exempt in India:

  • Agricultural Income
  • Interest on PPF
  • Dividends (only upto a specified limit)
  • Gifts received from relatives as specified under the Income Tax Act
  • Income on units of Mutual Funds
  • Sum received on maturity of LIC policy
  • Long term capital gain from STT paid shares and securities (only upto a specified limit)

Slab rates for the FY 2017-18:

1) For Individuals – whether resident or non resident, HUF, AOP, BOI, AJP:

Taxable Income Tax Rate
Upto INR 2,50,000 Nill
INR 2,50,000 to INR 5,00,000 5%
INR 5,00,000 to INR 10,00,000 20%
Above INR 10,00,000 30%

2) For Resident Senior Citizen (whose age is between 60 years to 80 years at any time during the previous year):

Taxable Income Tax Rate
Upto INR 3,00,000 Nill
INR 3,00,000 to INR 5,00,000 5%
INR 5,00,000 to INR 10,00,000 20%
Above INR 10,00,000 30%

3) For Resident Super Senior Citizen (whose age is more than 80 years at any time during the previous year):

Taxable Income Tax Rate
Upto INR 5,00,000 Nill
INR 5,00,000 to INR 10,00,000 20%
Above INR 10,00,000 30%

Rebate under section 87A
The rebate is available to a resident individual if his total income does not exceed Rs. 3,50,000. The amount of rebate shall be 100% of income-tax or Rs. 2,500, whichever is less.

4) For Partnership firm including LLP, Local Authority:

Flat Rate : 30%

5) For Domestic Company:

Flat Rate: 30%, however if turnover or gross receipts of the company does not exceed INR 50 crores in the financial year 2015-16 then the tax rate would be 25%.

6) For Foreign Company:

Flat Rate: 40%

7) For Co-Operative Society

Taxable Income Tax Rate
Upto INR 10,000 10%
INR 10,000 to INR 20,000 20%
Above INR 20,000 30%

Surcharge

In all above cases surcharge in addition to basic income tax rates shall be applicable in case certain income threshold limit is exceeded. Following are the rates of surcharge:

Entity Type Income Threshold
Upto INR 50,00,000 INR 50,00,000 to INR 1,00,00,000 INR 1,00,00,000 to INR 10,00,00,000 INR 1,00,00,000 to INR 10,00,00,000
Individual Nill 10% 15% 15%
Partnership Firm/LLP/ Local Authority/ Co-Operative Society Nill Nill 12% 12%
Domestic Company Nill Nill 7% 12%
Foreign Company Nill Nill 2% 5%

Cess:

Education cess 2% Cess is calculated on amount of (Income Tax + Surcharge)
Secondary and Higher Education cess 1%

Income Tax Return Form Types

Form Type Assessee Type Income covered
ITR 1 SAHAJ Individuals Income from Salaries, one house property, other sources (Interest etc.) and having total income upto Rs.50 lakh
ITR 2 Individual and HUF
  • Income from salary or through means such as pension
  • Income through the sale of assets or property in India ie: capital gains
  • Income from more than one housing property
  • Income from any business venture owning assets in countries outside of India
  • Income from countries outside of India
  • Income from agriculture is above Rs 5,000
  • Income from any windfall such as lotteries or horse racing
ITR 3 Individual and HUF Income earned from business is only in the form of the following
1) Received as a partner:
  • Salary
  • Commission
  • Bonus
  • Interest
  • Remuneration
2) Income from profits and gains of business or profession
ITR 4 Individual Presumptive income from Business & Profession
ITR 5
  • Firms
  • Limited Liability Partnerships (LLPs)
  • Body of Individuals (BOIs)
  • Association of Persons (AOPs)
  • Co-operative Societies
  • Artificial Judicial Persons
  • Local Authorities
All Incomes
ITR 6 All Companies except companies claiming
exemption under section 11
All Incomes
ITR 7 Persons, political parties, news agencies,
universities and entities in receipt of income
from property held under trust for charitable or religious purposes.
All Incomes

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