Income Taxes

In this, we will cover the following points:

  • -Definitions
  • -Scope
  • -Objective
  • -Summary

DEFINITIONS:

  • Accounting Profit is a profit or loss for a period before deducting tax expenditure
  • Tax expenditure (tax income) is the aggregate (total) amount included in the determination of profit or loss for the period in respect of current tax and deferred tax. In other words, tax expense (tax income) comprises current tax expense (current tax income) and deferred tax expense (deferred tax income)

EXHIBIT 2: TEMPORARY TAX DIFFERENCES GIVE RISE TO DTA AND DTL:-

TEMPORARY DIFFERENCES are of two types

1) Deferred Tax Assets

  • In respect of Deductible Temporary Differences
  • In respect of carrying forward unused tax losses/ tax credit

2)Deferred Tax Liabilities

  • In respect of taxable temporary differences

SCOPE:

This Standard does not deal with the methods and steps of accounting for government grants (Ind AS 20, Accounting for Government Grants and Disclosure of Government Assistance) or investment tax credits.

OBJECTIVES:

Tax Accounting: The objective of this Standard is to prescribe the accounting treatment for income taxes. Main problems the principal issue in accounting for income taxes is how to account for the current and future tax consequences of Tax management:-

  • Filling of return
  • Maintenance of accounta
  • Getting the accounts audited
  • Complying with the notices of the income tax department
  • Time deduction of tax at source and its payment
  • Payment of advance tax

Person:-

A person in tax can be:-

  • an individual
  • Hindu undivided family i.e (HUF)
  • company
  • firm
  • entity
  • -an association of persons i.e (AOP)
  • -the body of the individual i.e (BOI)
  • local authorities
  • -an artificial judicial person

GTI i.e gross total income

Five heads of income

  • 1)Salaries including allowances, perquisites, profit in lieu of salary, and pension
  • 2)House property whether resident OR nonresident
  • 3)Profit and gains of business and profession
  • 4)Capital gainshort term and long term
  • 5)other sources

What is the previous year?

The previous year is 2018-2019

What is the assessment year?

Assessment year means the time period of 12 months commencing on the 1st day of April every year till 31 march of the next year. Assessment year is 2019-2020

Who all need to pay income tax?

  • an individual who is resident or nonresident
  • (Huf) Hindu undivided families
  • (bod) body of the individual
  • societies & charitable/religious trust
  • all partnership firm
  • cooperative societies
  • local authorities like panchayats, municipal corporation, etc

How is income tax charged?

Taxable=Gross totalAllowance
IncomeIncomeDeductions

What are Tax planning strategies?

  • Tax planning Tax avoidance
  • Tax evasion

What is the computation of the income of partnership firms and tax liability?

Computation of income At the time of computing income for a partnership firm two adjustments must be taken into account

  • (a)Interest in partners capital
  • (b)Remuneration to partners

Interest in partners capital:

As per the income tax act interest on partners, capital is allowed @12%p.a. Therefore any excess payment of interest will be disallowed expenses Remuneration to partners

(i)Important conditions

  • (1)Remuneration consist of salary, bonus, and commission to working (active) partners
  • (2)Remuneration to partners must be authorized by the partnership deed
  • (3)lt must be for the period authorized by the partnership deed

(ii)Amount of remuneration

  • If there is a loss for the partnership firm then the maximum remuneration allowed is 1,50,000/
  • If we talk about residential status and scope of total income:-

The residential status of an individual is divided into two parts

  • *Resident (R) satisfy basic condition (a) or (b)
  • *Nonresident does not satisfy basic condition (a) and (b)
  1. Resident and ordinary resident (ROR)
  2. Resident but not ordinary resident (RNOR)

Resident and ordinary resident (ROR) has to follow the following rules

-satisfy basic conditions

AND

-satisfy the additional condition

(1) and (2)

Resident but not ordinary resident (RNOR) has to follow the following rules

-satisfy basic condition (a) or (b)

-does not satisfy the additional condition

(1) OR (2) OR BOTH

BASIC CONDITION:

  • (a)present in India in p.y (20182019) for 182 days or more
  • (b)present in India in p.y (20182019) for 60 days AND 365 days in 4 proceeding p.ys

ADDITIONAL CONDITION:

1)Resident in India in 2 out of 10 proceedings p.ys

AND

2)Present in India for 730 days in seven proceedings p.ys

SPECIAL CATEGORY:

1)Indian citizen leaving India for the purpose of employment OR a crew member of an Indian ship

AND

2)Indian citizens OR a person of Indian origin who comes to India

Becomes resident in India only when he/she resides in India in p.y for 182 days or more i.e Basic condition (b) is not applicable

2014-2015365 days 
2015-2016365 days 
2016-2017365 days 
2017-2018365 days 

P.y 2018-2019 = 60days

P.Y 2018-2019 
April 201830 days
May 2018
June 2018 183 days
July 2018
Aug 2018
Sept 2018
2nd Oct 2018

p.y 2018-2019 181 days 
P.Y 2019-202028th Sept Leave India
2008-2009
2009-2010
2010-2011
2011-2012
2012-2013
2013-2014
2014-20157 years=730 days
2015-2016
2016-2017
2017-2018 2018-2019 
2017-2018 2018-2019 

Scope of total income are of two types

1)Indian income

-Sources

  • In India
  • In India
  • Outside India

-Primary receipt

  • In India
  • Outside India
  • In India

2)Foreign income

-Sources

  • Outside India

-Primary receipt

  • Outside India

Tax burden:

SR NoPARTICULARSRORRNORNR
(1)Indian income TTT
(2)Foreign income
(a)Business or profession Set up outside T India But controlled from India TTNT
(b)Any other foreign IncomeTNTNT
(3)Past untaxed profit brought to India in p.y 2018-19 NTNTNT
  1. T=TAXABLE
  2. NT=NON TAXABLE

Summary:

  • Income from Dubai is only taxable for ROR Rent from a house in the U.K received in Spain is only taxable for ROR
  • Income earned in new Zealand in the past, but brought to India during the current previous year is not taxable for any of the resident or nonresident
  • Income from agriculture in Japan received in India is taxable for all 3 i.e ROR, RNOR, AND NR
  • Interest credited to HSBC bank, new york branch is taxable for ROR only Income from a business in Germany, controlled from India is taxable for ROR AND RNOR ONLY

The following are more examples of taxable income for which resident

  • income from house property in India
  • income from property in Rome
  • interest from bank a/c in India
  • income from business in Bangladesh being controlled by India
  • interest in bank a/c in the U.S.A
  • salary earned and received in Tokyo
  • income earned and received in London
  • dividend from British company received in India
  • rent from a property in Delhi received in the U.S.A
  • income from a business in Mumbai, controlled by the U.S.A
  • rent from a property in the U.S.A received there but later remitted to India
  • interest from deposits with Indian bank in Mumbai
  • income from agriculture in Sri Lanka
  • past untaxed profit earned outside India brought to India

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