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Taxation Managment

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Taxation Management ­ FIN 623
VU
MODULE 6
LESSON 6.26
SALARY AND ITS COMPUTATION
Exercise 1
Compute taxable income and tax thereon from following information/ data in respect of Mr. A an
employee of XYZ Company for tax year 2007
Basic salary from 1st Jan-06 to
31st Dec-06
Rs 30,000 per month
Solution to Exercise 1
Tax payer: Mr. A
Tax year: 2007
Residential Status: Resident
NTN: 000111
Computation of taxable income and tax thereon:
In Rs
Particulars
Total income
Exempt Income
Taxable Income
Basic salary
180,000
Nil
180,000
Total
180,000
Tax liability:
Tax rate of 0.25 percent shall apply as given at serial #2 for taxable income exceeding Rs150,000 up to Rs
200,000.
Income tax payable =180,000x0.25%
= Rs 450
Note:
Income received by Mr. A during calendar year 2006 (that is 01-01-06 t0 31-12-2006) is Rs 360,000 but
during tax year 2007, the income of Mr. A is Rs 180,000 (since tax year 2007 covers the period from 01-07-
06 to 30-06-07)
Exercise 2
Compute taxable income & tax thereon from following information/ data pertaining to tax year,2007 in
respect of Mr. X an employee of a private Company.
Salary
Rs 40,000 per month
Bonuses
Rs 80,000 for tax yr.
Utilities paid by employer
Rs 40,000 for tax yr.
Solution to Exercise 2
Tax payer: Mr. X
Tax year: 2007
Residential Status: Resident
NTN: 000111
Computation of taxable income and tax thereon:
In Rs
Particulars
Total income
Exempt Income
Taxable Income
Basic salary
480,000
Nil
480,000
Bonuses
80,000
Nil
80,000
Utilities (Note 1)
40,000
Nil
40,000
Total
600,000
Tax liability:
Tax rate of 4.50% percent as given at serial #8 for taxable income exceeding Rs 500,000 up to Rs 600,000
Income tax payable:
600,000 x 4.50% = Rs 27,000
Note 1:
Utilities were exempt up to 10% of MTS or Basic salary till 30th June, 2006, vide clause 38 of part 1 of
Second Schedule. This clause has been omitted by Finance Act, 2006. Hence no exemption is available for
tax year 2007.
Exercise 3
Compute taxable income from following information/ data in respect of Mr. Y an employee of a private
Company for tax year 2007.
MTS of Mr. Y
Rs20,000--2000--30,000
Salary
Rs 24,000 per month
House allowance
Rs 2000 per month
Solution to Exercise 3:
41
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Taxation Management ­ FIN 623
VU
Tax payer: Mr. Y
Tax year: 2007
Residential Status: Resident
NTN: 000111
Computation of taxable income and tax thereon:
In Rs
Particulars
Total income
Exempt Income
Taxable Income
Basic salary
288,000
Nil
288,000
House Allowance
24,000
Nil
24,000
Utilities (Note 1)
36,000
Nil
36,000
Total
348,000
Tax liability:
Tax rate of 1.50% percent as given at serial #5 for taxable income exceeding Rs 300,000 up to Rs 350,000
Income tax payable:
348,000 x 1.50%= Rs 5,220
Note 1:
Utilities were exempt up to 10% of MTS or Basic salary till 30th June, 2006, vide clause 38 of part 1 of
Second Schedule. This clause has been omitted by Finance Act, 2006. Hence no exemption is available for
tax year 2007.
Exercise 4:
Compute taxable income from following information/ data in respect of Mr. A an employee of XYZ
Company for tax year 2006
MTS of Mr. A
Rs 30,000--5000--50,000
Basic salary
Rs 40,000 per month
House Allowance
Rs120,000 p.a
Tax Deducted at Source
Rs 6,000
Solution to Exercise 4:
Tax payer: Mr. A
Tax year: 2007
Residential Status: Resident
NTN: 000111
Computation of taxable income and tax thereon:
Particulars
Total income
Exempt Income
Taxable Income
Salary
480,000
Nil
480,000
House Allowance
120,000
Nil
120,000
Total
480,000
Tax liability:
Tax rate of 4.50% percent as given at serial #8 for taxable income exceeding Rs 500,000 up to Rs 600,000
Income tax payable:
600,000 x 4.50% =
Rs 27,000
Tax deducted at source
Rs 6,000
Tax payable: 27,000-6000 =
Rs 21,000
Exercise 5:
Compute taxable income and tax thereon in respect of Mr. Yasir (a salaried individual) for the tax year 2007
from the following information/ data:
Basic salary
Rs 20,000 pm
House rent allowance
Rs 5,000 pm
Medical Allowance
Rs 5,100 pm
Free hospitalization services availed under terms of employment.
Rs 40,000 pm
Driver's salary paid by employer
Rs 8,000 pm
Dearness Allowance
Rs 6,000 pm
Solution to Exercise 5:
Tax payer: Mr. Yasir
Tax year: 2007
Residential Status: Resident
NTN: 000111
Computation of taxable income and tax thereon:
In Rs
Particulars
Total income
Exempt Income
Taxable Income
Salary
240,000
Nil
240,000
House Allowance
60,000
Nil
60,000
Medical allowance
61,200
Nil
61,200 (N-1)
42
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Taxation Management ­ FIN 623
VU
Hospitalization
40,000
40,000
Nil
Driver's Salary
96,000
Nil
96,000
Dearness Allowance
72,000
Nil
72,000
Total
529,200
Tax liability:
Tax rate of 4.50% percent as given at serial #8 for taxable income exceeding Rs 500,000 up to Rs 600,000
Income tax payable:
529,000 x 4.50%= Rs 23,814
Note:
Clause 139(a) & (b) of part 1 of second schedule:
Free hospitalization services provided under the terms of employment are exempt.
If (a) not available then 10% of basic salary is exempt in case medical allowance provided.
43
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