As per section 14 of Income Tax Act, 1961, there are five heads of income.
Salaries
Income from house property
Profits and gains of business or profession
Capital gains
Income from other sources
While computing income under the head Salary, the following deductions are available from Gross Salary under section 16.
Standard deduction [Section 16(ia)]
Rs. 50000/- OR the amount of salary whichever is less.
[Standard deduction had been introduced in place of transport allowance Rs. 19200/- (1600 per month) and medicalreimbursement of Rs. 15,000 per annum].
example- Mr. Vinod gets from his employer basic salary Rs. 20000 per month, D.A Rs. 5000 per month, Transport allowance Rs. 1800 per month and HRA Rs. 1000 per month. Calculate deduction from gross salary.
basic salary =20000*12 =240000/-
DA = 5000*12 =60000
T.A = 1800*12 = 21600/-
HRA = 1000*12 =12000/-
Total Gross Salary =240000+60000+21600+12000 = 333600/-
Deduction will be 50000 OR 333600 whichever is less i.e., 50000/-
Note:-HRA is partly exempt u/s 10(13A) but in this example HRA has been included fully.
Entertainment allowance [Section 16(ii)]
Entertainment allowance received by employee from employer is fullytaxable. Firstly, it is to be included in the salary. Only Government employees shall be eligible to get deduction.
The least of the following amount shall be deductible:-
One-fifth of his basic salary or
Entertainment allowance received.
Rs. 5000/-
Note-actual amount spent by the employee towards entertainment is not relevant.
Professional tax [Section 16(iii)]
Professional tax [(tax on employment- (maximum Rs. 2500/-)] is levied by a State under Article 276 of the Constitution of India and if employer pays this tax on behalf of the employee, the amount paid is firstincluded in salary then deduction is available on paidbasis.
Mutual fund creates an important investment opportunity for small investors who do not have knowledge about market and face a lot of problems in taking investment decision because of volatile market. This is one of top solution for the problems of small investors and the history of mutual fund industry started in 1963 with the formation of Unit Trust of India in 1963 by an Act of Parliament under the control of RBI. In 1978 it came under the control of the Industrial Development Bank of India and Unit Scheme 64 was the first scheme of UTI in 1964.
In 1987 public sector mutual funds came into existence and these funds set up by public sector banks, Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). Private sector mutual funds came in 1993. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund under the SEBI (Mutual Fund) Regulations 1996. In 2003, UTI converted into two different entities.
Meaning:-
Mutualfund is a financial intermediary that pools money from investors for collectively investment in stocks, bonds and other securities.
Mutual Fund Operation Flow Chart
Investors invest the amount in mutual fund.
Fund manager of mutual fund invest in securities (shares, debentures).
Earn returns redistributed to investors.
Organizational Structure of Mutual Fund in India
Sponsor– is the entity who creates a mutual fund. According to SEBI(Mutual Fund) Regulations, 1996 the sponsor contributes at least 40% of net worth of AMC.
Trust– The Mutual Fund is a trust under the Indian Trusts Act, 1882.
Trustees– The Board of Trustees manage the trust and safeguard the interest of the unit holders. The fund sponsor appoints trustees and trust is created through a document called the TrustDeed executed by the fund sponsor in favour of trustees. Trustees are primary guardian of the unit holders.
Asset Management Company (AMC)- Trustee appoints the AMC manages the funds ,operations and investments of the MF and provide advisoryservices.
Custodian-safekeeping of the investors’ fund and securities.
Types of Mutual Funds
On the basis of Structure-
Open Ended Funds (Schemes)- Most of the funds are open ended as there is no defined maturity date. The key feature is liquidity round the year. Investors can buy and sell (redeem) at any time. An open ended fund comes into existence through the New Fund Offer.
Closed Ended Funds- have a defined maturity date. Close ended funds are listed on the stock Exchange.
Types of Mutual Fund Schemes:-
Equity Schemes:- Small Cap Fund, Mid Cap Fund, Large & Mid Cap Fund, Large Cap Fund, Multi Cap Fund, Sectoral / Thematic and ELSS.
Difference between Foregoing Salary and Surrender of Salary
Foregoing of Salary:-
Once salary accrues , its subsequentwaiver does not make it exempt from taxliability. Such waiver is treated as only an application of income and hence, it is chargeable to tax.
Example- Mr. Raj is an employee in XYZ Pvt. Ltd. In the month of March 2021, he says to his employer that he is not interested in getting salary for April 2021 and it might be donated to a charitable institution.
Here, the salary for the month of April 2021 will be taxable in the hands of Mr. Raj. However, he is entitled to get deduction under chapter VIA (section 80G of the Income Tax Act, 1961).
Surrender of Salary:-
If an employee surrenders his salary to the CentralGovernment u/s 2 of the Voluntary Surrender of Salaries (Exemption from Taxation) Act, 1961,the salary so surrendered would be exempt.
Difference between advance salary and advance against salary
Advance Salary:- advance salary is taxable on receipt basis.
Advance against Salary:-
it is treated as loan. Loan is different from salary. Advance is generally adjusted with salary over a specified time period. Hence, it is not taxable.
For the purpose of Income Tax Act, 1961 the term salary defined under Section 17. Generally, it includes monetary as well as non-monetary items.
Whatever is received whether in cash, kind or as a facility [i.e. perquisite] by an employee from employer is considered as salary.
What are allowances?
Allowances are fixed periodic amount which are paid by employer to employee to meet some particular requirements (for official or personal expenses). Example, house rent allowance, tiffin/lunch/dinner allowance, uniform allowance , conveyance allowance etc.
Generally, there are threetypes of allowances under the Income Tax Act, 1961 and allowances are taxable on due or receipt basis, whichever is earlier.
Taxable Allowances- E.g., Dearness Allowance, Entertainment Allowance, Overtime Allowance, Fixed Medical Allowance etc.
Exempt Allowances– E.g., Allowances to High Court Judges, Compensatory Allowance received by a judge.
Partial Exempt ( partial taxable)– E.g., House Rent Allowance, Special Allowances [u/s 10(14)].
What deductions are applicable to salaried person in computing salary income?
Standard deduction [Section 16(ia)]- 50000/- OR the amount of salary, whichever is lower.
Entertainment allowance [Section 16(ii)]- allowed to Government Employee. Least of the following:-
20% of basic salary or
Rs.5000 or
Actual Entertainment allowance received
3. Professional tax [Section 16(iii)]- tax on employment levied by a State under article 276 (max. 2500/- per annum) of the Constitution of India . Deduction is allowed only if it is actually paid by the employee during the previous year.
What is the taxability of conveyance allowance?
As per Section 10(14) read with Rule 2BB conveyance allowance is exempt to the extent of amount spentor amount received whichever is less.
Note: This is given by employer to employee in order to meet the expenditure incurred on conveyance for official purpose.
What is form 12BB?
It is a form in which employee furnishes evidence or particulars of the claims. Such as House Rent Allowance, Leave Travel concession, Deduction of Interest, and deductions under Chapter-VIA.
Can standard deduction be taken from family pension?
No, family pension is taxable under the head income from other sources.
What is Form-16?
It is a certificate of TDS, if notaxes have been deducted by employer from salary then employer can issue salary statement only.
Is Transport Allowance can be claimed as exemption?
Generally , it is fully taxable ,exemption upto Rs. 3200/- p.m. is allowed in case of blind/deaf and dumb/orthopedically handicapped employees.
TDS Deduction at Source under Goods and Services Tax:-
Special Note:- TDS under GST is different from TDS under Income Tax.
Basic Intro.- Section 51 of CGST Act, 2017 deals with the provisions of TDS under GST. In 28th meeting of GST Council, introduction of TDS has been recommended from 01.10.2018
What is TDS under GST?
Mechanism to collect tax from suppliers/vendors through buyers where the total value of taxable supply under a singlecontract (excluding GST) exceeds Rs. 2.5 Lakh.
Here, the deductor is to deduct tax at source from payment made to the suppliers of taxable goods or services or both.
Example– Mr. Raj, a DDO of XYZ office of the Government buys stationeries for his office from supplier Mr. Vinod for Rs. 3.5 Lakh under a contract.
When Mr. Raj pays to Mr. Vinod , he is require to deduct tax.
Which Persons are liable to deduct tax under GST?
A department or establishment of the Central Government or State Government; or
Governmental agencies; or
local authority; or
An authority or a board or any otherbody (1) set up by an Act of Parliament, or a State Legislature; or (ii) established by any Government having 51% or more participation by way of equity or control.
Public Sector Undertakings;
Society established by the Central/ State Government or a Local Authority under the Societies Registration Act,1860;
Rate of TDS Under GST:–
There are 4 types of taxes–
Integrated Tax (IGST), Central Tax (CGST) and State Tax (SGST) / Union territory Tax (UTGST).
Rate of TDS is @ 2% [i.e. 1% each on CGST &SGST/UTGST] in case of Intra-State supply and @ 2% on IGST in case of Inter-State supply on the amount paid/credited.
No TDS:-When the location of the supplier and the place of supply is in a State/ Union territory which is different from the State/ UT of registration of the recipient.
Situation
Location of Supplier
Place of Supply
Registration of Recipient
Applicability of TDS under Sec.51
Rate of TDS
1
Haryana
Haryana
Haryana
Yes
1% +1% = 2%
2
Haryana
Haryana
U.P
No
–
3
Haryana
U.P
U.P
Yes
2%
4
Ladakh
Ladakh
Ladakh
Yes
1% +1% = 2%
5
Ladakh
Ladakh
Lakshadweep
No
–
6
Ladakh
Lakshadweep
Lakshadweep
Yes
1% +1% = 2%
Is Registration is required for TDS Deductor ?
Yes, TDS deductor has to get registration and get GSTIN [Goods & Services Tax Identification Number].
What is the Time limit for filing the TDS Returns under GST?
FORM GSTR-7 for a particular month has to be filed online and due date is the 10th of the month succeeding to the month in which such deductions is made.
When TDS under GST is applicable ?
Tax is required to be deducted from payment made/credited to supplier if the total value of taxablesupply under a contract exceeds Rs. 2,50,000/- (Rupees two lakh and fifty thousand).
Note:-Value of supply exclude the taxes leviable under GST (i.e. Central tax, State tax, UT tax, Integrated tax and Cess).
Example– If Mr. Raj a DDO of XYZ office of the Government wants to buy stationeries for his office from supplier Mr. Vinod. So, here, Mr. Raj is required to deducttax at the time of making payment or crediting payment to Mr. Vinod.
Note:-Here, Value of taxablesupply under a contractexceeds Rs 2.5 lakh (threshold limit).
Special Note:-tax is required to be deducted when payment is madeafter the effective date i.e. 01.10.2018 and date of contract does not matter.
Situation 1. Mr. Raj and Mr. Vinod enter into a contract of Rs. 2.4 Lakh (taxablesupply) and payment of Rs. 1.4 Lakh has been made by Mr. Raj on 18.11.2021. Now, on 25.11.2021, contract value is revised from Rs. 2.4 Lakh to 5.4 Lakh. On which amount, tax should be deducted?
TDS shallhave to be deducted on 5.4 Lakh (full value) while making remainingpayment of Rs. 4 Lakh. Here, Rs. 10800/- would be deducted at the time of remaining payment of Rs. 4 Lakh.
Late fees, Interest and penalty:-
if fails to furnish the GSTR-7 by due date, late fees of Rs. 100/- per day under CGST & SGST/UTGST Act, separately subject to maximum Rs. 5000/- each under under CGST Act & SGST/UTGST Act.
Advice for readers- for detailed study please refer any book of Indirect Tax Laws.
In every business organization, human plays a vitalrole because there is nothing beyond a human being. Every business concern requires land, building, Plant & Machinery etc. but the important thing is that without human these are useless.
According to AlferedMarshall the most important asset in any business is human. Just like otherresources, human also is a resource. This is considered one of the valuable resources in business because success of business enterprise depends on capable person.
HRA is a accounting for human resources by which cost can be determined.
HRA is the process of identifying and measuring data about human resources and communication to interested parties.
Objectives of HRA:-
To determine cost of recruitment, training & development etc. of human resources.
To enable management to monitor and assess efficiency of human resources.
To assist in developing effective management practices.
To provide information about human resources to investors for decision purpose.
To evaluate the return on investment in human resources.
To provide qualitative information about human resources.
To find out whether human resources have been used properly or not.
To analyze human assets whether these assets are to conserved, depleted and appreciated.
To help in better control.
Importance:-
Human resources provide useful information to the management, financial analysts and employees etc.
To assist company in identifying investment on employees and expected return on inestment.
To provide useful information about cost and value of human resources.
To give base for planning for physical assets and human resources.
To help in making personnel policies. For example recruitment, selection, promotion and retrenchment etc.
To provide useful information to investors and other interested users.
To assist management in best utilization of human resources.
To motivate employees.
To resolve industrial disputes.
To identify the causes of high labor turnover ratio and suggest for preventive measures.
Forensic accounting is growing due to fraud and white collar criminal activities. First time, the term forensicaccounting was used in 1946 by Maurice E. Peloubet a partner in a New York accounting firm.
After that, Max Laurie stressed the need for forensicaccounting, literature and training. As far as cyber crime is concerned, this is also increasing. Therefore, there is need of forensic accounting.
In USA, Enron an energy company faced a major disaster in form of largest bankruptcy. Satyam scam in India creates a big question mark on the creditability and authenticity on certified auditors.
Generally, accountants acts like a watchdog but a forensic accountant must be a bloodhound.
According to George A. Manning, forensic accounting is the science of gathering and presenting financial information in a form that would be accepted by a jurisprudenceperpetrators of economic crimes.
Accounting + Auditing+ Investigating Skills = Forensic accounting which focuses on detecting or preventing accounting fraud.
It is used for legal purpose. Everywhere, whether there is stock market fraud, bank fraud or cyber fraud. It is important tool to detect investigate and prevents the frauds.
AICPA– It is the application of accounting principles, theories and discipline to facts or hypothesis at issue in legal dispute and encompasses every branch of accounting knowledge.
For the betterment of corporate financial reporting, The American Institute of Certified Public Accountants (AICPA) formed a study group under the chairmanship of Robert M. True Blood. The study group visited various places and studied more than 500 corporations, professional firms, national and international organisations.
The Study group conducted meeting and interviewed of various executives and submitted report in October, 1973.
On the basis of this study, the study group recommended twelve objectives of financialreporting.
Objectives:-
To provide useful information for financial decision
To provide information to investors and creditors for prediction, comparison and evolution.
To give priority to users who have limited resources, authority and capability and rely on financial statements as principle source of information.
To furnish information to users for predicting, comparing and evaluating the earning capacity of business concern.
To supply information to the management by which resources can be utilised in such a manner that goal of enterprise achieve.
To give factual and interpretative information about transactions and events.
To provide financial position statement with current value.
To provide income statement for predict, compare and evaluate earning capacity of business concern and if changes in value should be reported separately.
To provide information that makes the economic decision beneficial for investors.
To provide financial information which increase the reliability of users.
To provide Information for evaluating earning and effectiveness of resources in achieving predetermined goal of the enterprise.
To provide report on financial statements about business activities which have effect on society and social environment.
Procedure for setting Accounting Standards in India/Standard Setting Process:-
ICAI is the premiere accounting body in India who constituted Accounting Standards Board (ASB) in 1977. Accounting standards are developed by the ASB. The ASB considered the International Accounting Standards (IAS)/International Financial Reporting Standards (IFRS) while framing Accounting Standards (AS) in India and tried to integrate them
The Procedure of ASB for setting accounting standards in India is defined as:-
first of all, broad areas are to be found out by ASB for formulation of accounting standards.
Study group is constituted by ASB for preparing preliminary drafts. The draft normally includes definitions, objective, scope, recognition and measurement principles.
Consideration and revision of draft, if any,.
Circulation of draft to members of the council and various bodies such as:-
Members of ICAI.
MCA
SEBI
C&AG
CBDT etc. for comments.
Taking into consideration the comments of bodies and meeting with the representatives of the bodies.
Finalisation of exposure draft and issue for public comments.
After consideration of comments received on exposure draft, submit to the council of ICAI for consideration and approval.
The council of ICAI, if necessary, do modification in consultation with ASB.
Before starting a new business, business organization should think about tax provisions and tax incentives from income tax point of view.
Form of Organization:-
The first step to set up a new business is to decide the form of organization, selection of form of organization depends not only financial requirement and resources but also on tax considerations. A new business can be in any of the following forms:-
Sole proprietorship:- Under sole proprietorship, the person who do the business is liable to pay tax, if any, entire income along with other income assesses in the hands of same person. Noallowance and relief would be available in computing income from business and doesnot get deduction of remuneration for rendering of services by him. The cost of doing such type of business is small and all the profit from business goes to proprietor. As far as deduction in concerned, sole proprietor is entitled to get deductions under chapter VIA.
Hindu Undivided Family:- Hindu undivided family’s income is firstly taxable in the hands of family at the rates applicable. After division of income of family among the members, the members of the family would not become liable to tax when they receive any portion of the family’s income as specific exemption granted under section 10(2) of the Income-tax Act, 1961.
Note:-As per section 115BAC, individuals and HUF have an option to pay tax in respect of their total income (other than income chargeable to tax at specialrates).
3. Partnership/LLP:- 30% flat rate is applicable on Firm/LLP, in addition to tax, surcharge would be applicable if the totalincome exceeds the threshold limit and health and educationcess as well. Income of partners received from firm is exempt under section 10(2A).
4. Company:- Company organizes as widely held or closely held company on the basis of ownership and control.
Deemed dividend under section 2(22)(e) and the provisions of section 79 (restriction on carry forward of losses) do not apply to a widely held company. MAT provisions are applicable to companies. As far as tax is concerned, tax incentives available to domestic companies not available to foreign companies.
Advice for readers: for detailed study please refer any Direct Tax Laws’ book
