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Taxation Managment

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Taxation Management ­ FIN 623
VU
MODULE 8
LESSON 8.35
INCOME FROM BUSINESS & ITS COMPUTATION
Methods of Accounting
Under section 32, a person's income is to be computed in accordance with method of accounting regularly
employed by such person.
Types of Accounting Methods
(i)
Cash-Basis accounting-Sec. 33
(ii)
Accrual-Basis accounting Sec. 34
For Companies ­Accrual basis mandatory.
For Others --- optional, cash or Accrual Basis
Under Cash-Basis Accounting, a person shall derive income when it is received and shall incur
expenditure when it is paid.
Under Accrual Basis Accounting a person derives income when it is due to the person and shall incur
expenditure when it is payable by the person.
Change in the method of accounting after seeking approval from commissioner Sec. 32(4)
Valuation of Stock:
Cost of stock-in-trade disposed of (consumed) during the year shall be computed as under.
A+B-C
A: Opening stock
B: Stock acquired during the year
C: Closing stock.
Records:
Kinds of Record to Be Maintained
Records of Money received & expended
Sales & purchases record
Assets &Liabilities record
Stock register
If computerized system ---Electronic receipts.
General Instructions
Back up system in place.
Security Arrangements/system.
Record to be maintained in line with International Accounting Standards.
To keep record at specified place.
Rates of Tax for Individuals and AOP 1st schedule.
For Tax year 2007
Serial No.  Taxable Income
Rate of Tax
1)
Where the taxable income does not exceed Rs
0%
100,000
2)
Where the taxable income exceeds Rs. 100,000 but
0.5%
does not exceed Rs. 110,000
3)
Where the taxable income exceeds Rs. 110,000 but
1.00%
does not exceed Rs. 125,000
4)
Where the taxable income exceeds Rs. 125,000 but
2.00%
does not exceed Rs. 150,000
5)
Where the taxable income exceeds Rs. 150,000 but
3.00%
does not exceed Rs. 175,000
6)
Where the taxable income exceeds Rs. 175,000 but
4.00%
does not exceed Rs. 200,000
7)
Where the taxable income exceeds Rs. 200,000 but
5.00%
does not exceed Rs. 300,000
8)
Where the taxable income exceeds Rs. 300,000 but
7.50%
does not exceed Rs. 400,000
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Taxation Management ­ FIN 623
VU
9)
Where the taxable income exceeds Rs. 400,000 but
10.00%
does not exceed Rs. 500,000
10)
Where the taxable income exceeds Rs. 500,000 but
12.50%
does not exceed Rs. 600,000
11)
Where the taxable income exceeds Rs. 600,000 but
15.00%
does not exceed Rs. 800,000
12)
Where the taxable income exceeds Rs. 800,000 but
17.50%
does not exceed Rs. 1,000,000
13)
Where the taxable income exceeds Rs. 1,000,000 but
21.00%
does not exceed
14)
Where the taxable income exceeds Rs 1,300,000
25.00%
Rates of Tax for Companies for Tax Year 2007
Tax Year
Banking Company
Public Company
Private Company
other than Banking
other than Banking
Company
Company
2003
47%
35%
43%
2004
44%
35%
41%
2005
41%
35%
39%
2006
38%
35%
37%
2007
35%
35%
35%
In case the taxpayer is a society or a cooperative society, the tax shall be payable at the rates applicable
to a public company or an individual, whichever is beneficial to the tax payer.
Rate of tax for a small company shall be 20% of taxable income.
Rate of Dividend tax under Section 5:
a) in case, dividend received by a public company  5% of gross amount received.
or insurance company or any other resident
company.
b) in any other case.
10% of gross amount of dividend received.
Rate of tax on certain payments to Non- Residents under Section 6:
Royalty or fee for technical services
15% of gross amount received
Rate of tax on shipping or Air Transport of a
8% of gross amount of dividend received
non-resident person
Shipping income
8% of gross amount received
Air transport income
3% of gross amount received
Deduction of tax at source
Profit on debt under section 151
10% of profit paid
Prizes and winnings under section 156
On a prize bond
10% of gross amount paid
On winnings from raffle, lottery, prize on
20% of gross amount paid
winning a quiz etc
Depreciation (Sec.22) Third Schedule Part 1
Depreciation rates specified for the purposes of section 22 shall be:
1. Building (all types)
10%
2. Furniture (including fittings) and machinery
15%
and plant (not otherwise specified), Motor
Vehicles (all types), ships, technical or
professional Books.
3. Computer hardware including printer,
30%
monitor and allied items [machinery and
equipment used in manufacture of I.T. products],
aircrafts and aero engines.
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Taxation Management ­ FIN 623
VU
4. In case of mineral oil concerns the income of
which is liable to be computed in accordance
with the rules of Part 1 of the fifth Schedule.
a) Below ground installations
100%
b) Offshore platform and production
20%
installations.
65
Table of Contents:
  1. AN OVERVIEW OF TAXATION
  2. What is Fiscal Policy, Canons of Taxation
  3. Type of Taxes, Taxation Management
  4. BASIC FEATURES OF INCOME TAX
  5. STATUTORY DEFINITIONS
  6. IMPORTANT DEFINITIONS
  7. DETERMINATION OF LEGAL STATUS OF A PERSON
  8. HEADS OF INCOME
  9. Rules to Prevent Double Derivation of Income and Double Deductions
  10. Agricultural Income
  11. Computation of Income, partly Agricultural,
  12. Foreign Government Officials
  13. Exemptions and Tax Concessions
  14. RESIDENTIAL STATUS & TAXATION 1
  15. RESIDENTIAL STATUS & TAXATION 2
  16. Important Points Regarding Income
  17. Geographical Source of Income
  18. Taxation of Foreign-Source Income of Residents
  19. Exercises on Determination of Income 1
  20. Exercises on Determination of Income 2
  21. SALARY AND ITS COMPUTATION
  22. Definition of Salary
  23. Significant points regarding Salary
  24. Tax credits on Charitable Donations
  25. Investment in Shares
  26. SALARY AND ITS COMPUTATION EXERCISES 1
  27. SALARY AND ITS COMPUTATION EXERCISES 2
  28. SALARY AND ITS COMPUTATION EXERCISES 3
  29. Tax treatment of Gratuity
  30. Gratuity Exercise
  31. PROVIDENT FUND
  32. Exemptions on Business income, Treatment of Speculation Business
  33. Deductions Allowed & Not Allowed
  34. Deductions: Special Provisions, Depreciation
  35. Methods of Accounting
  36. Taxation of Resident Company
  37. Taxation of Companies: Exercises
  38. Computation of Capital Gain
  39. Disposals Not Chargeable To Tax
  40. TAX RETURNS & ASSESSMENT OF INCOME UNIVERSAL SELF ASSESSMENT SCHEME
  41. Normal Assessment, USAS, Provisional Assessment, Best Judgment Assessment
  42. ADVANCE TAX COLLECTION & RECOVERY OF TAX PENALTIES & PROSECUTION
  43. What is Value Added Tax (VAT)?
  44. SALES TAX
  45. SALES TAX RETURNS