Theme: Income Tax

Limited liability partnership (LLP) is a partnership formed and registered under the Limited Liability Partnership Act, 2008.​ An LLP is a legally separated entity from that of its individual partners. As a corporate body, an LLP is legally liable to the full extent of its assets, but the liability of its partners is limited to their contribution in the LLP. There is no personal liability of a partner except in the case of a fraud. Moreover, a partner is not responsible or liable for another partner’s misconduct or negligence as there is no joint liability in the case of LLP.

An association of persons (AOP) or a body of individuals (BOI), whether incorporated or not, is treated as a ‘person’ under the Income Tax Act.(( Section 2(31)(v), Income Tax Act, 1961.)) Hence, AOP or BOI is treated as a separate entity for the purpose of assessment under the Act. An AOP or BOI shall be deemed to be a person whether or not they were incorporated with the object of deriving income, profits or gains.

Advance tax(( Section 207, Income Tax Act, 1961.)) refers to income tax that should be paid in advance during the financial year, instead of as a lump sum payment at the end of the year. It is also known as pay-as-you-earn tax. Advance tax shall be payable when your tax liability is Rs 10,000 or more. Advance tax does not apply when you don’t have an income source from business/profession, or if you are a senior citizen in India (60 years and above).(( Section 207, Income Tax Act, 1961.))

Calculating Advance Tax

You can calculate your advance tax on the income tax website. 

Payment of Advance Tax

Advance tax payments have to be made in installments throughout the financial year, as per due dates provided by the Income Tax Department. It is usually paid in four installments(( Section 211, Income Tax Act, 1961.)) during each financial year, and the due date of each installment and the amount of such installment is specified below:

When any tax is payable on any income tax return, before submitting the return, you as the assessee have to pay such tax, along with interest and fee for delay in submitting the return or default in payment of advance tax. The income tax return will be accompanied by proof of payment of such tax , interest and fee.(( Section 140A, Income Tax Act, 1961.)) Self-assessment tax refers to any balance tax that you have to pay on your income after the TDS and advance tax have been taken into account, before filing the return of income. The ITR cannot be submitted till all taxes have been paid.

A taxpayer engaged in business or profession is required to maintain regular books of account under certain circumstances.(( Section 44AA, Income Tax Act, 1961.)) To give relief to small taxpayers from this tedious work, the Income Tax Act has provided for a presumptive taxation scheme.​ A person adopting the presumptive taxation scheme can declare income at a prescribed rate and, in turn, is relieved from the tedious job of maintaining account books.

The presumptive taxation scheme can be adopted by following persons :

• Resident Individual
• Resident Hindu Undivided Family
• Resident Partnership Firm (except a Limited Liability Partnership Firm).

This Scheme cannot be adopted by a person who has made any claim towards deductions under certain sections(( Sections 10A, 10AA, 10B, 10BA, 80HH to 80RRB, Income Tax Act, 1961)) of the Act in the relevant year.

Any business which has a total turnover of less than Rs 2 crore can opt for presumptive taxation. Income will be computed on a presumptive basis and the business must declare profits of 8% for non-digital transactions or 6% for digital transactions for the relevant year. In other words, income will not be computed in the normal manner (Turnover minus Expense) but will be computed at 8% or 6% of the turnover. A professional having a gross revenue upto 50 lakhs can opt to be taxed presumptively, and must declare 50% of gross receipts of profession as his presumptive income.

If you file an incomplete income tax return without giving all the necessary information, your return will be considered as defective and will not be accepted. You will have to file your income tax returns once again providing complete details.

Yes, the income of a minor (child below 18 years of age) can be taxed in India. The income of a minor (except a child suffering from a disability)(( Section 80U, Income Tax Act, 1961.)) is included as part of the total income of the child’s parent.(( Section 64, Income Tax Act, 1961.)) The term ‘parent’ here refers to the parent who has the greater income, and the child’s income will not be included in the other parent’s total income. For example if the father earns more income than the mother, then the child’s income will be clubbed with the fathers income. If the parents are not married, then the child’s income will be included in the income of the parent who maintains the child.

A child’s income will not be clubbed with the parent when:

• the child gets income from manual work or
• income from an activity involving application of the child’s skill, talent or specialised knowledge and experience.

All gifts received, whether in cash or kind, are taxable under the Indian law. For example, if a grandmother gifts property to the granddaughter. Tax on gifts is to be paid by the person receiving it, in the year in which it is received. It is taxed under the head ‘income from other sources’.(( Section 56, Income Tax Act, 1961.)) To be considered a taxable gift, the item exchanged should be(( Section 56(2)(vi) (vii), Income Tax Act, 1961.)):

• Without any consideration
• Of value more than INR 50, 000

However, some gifts are tax-exempt, if they qualify the following grounds:

• They have been received  from specific relatives, i.e. parents, siblings, spouse
• Gift received in marriage, from relatives or in a will, regardless of value
• Gift received in contemplation of death of the payer
• Received from a local authority, fund, university, or medical institution

Capital assets((  Section 2(14), Income Tax Act, 1961.)) are property of any kind that a taxpayer holds, regardless of whether or not it is related to the business or profession that he practices. The following are not included under capital assets:

• Consumables or raw materials, possessed by a taxpayer for the purpose of his business or profession.
• Movable property like clothes and furniture that count as personal effects of the taxpayer or his family, valuables like jewellery, archaeological collections and artworks are considered as capital assets.
• Agricultural land
• Gold bonds
• Special bearer bonds
• Gold deposit bond

Depending on how long they are held by the taxpayer, capital assets may be classified as –

• Short-term capital asset: An asset held for 36 months or less, right before it is transferred. For immovable property, this time limit is 24 months.((  Section 2(42A), Income Tax Act, 1961.))

Long-term capital asset: An asset held for any time longer than 36 months is considered so.((  Section 2(29A), Income Tax Act, 1961.))

According to the Income Tax Act(( Section 15, Income Tax Act, 1961.)), the following types of income will be considered salary:

• Any salary due from an employer (or former employer,) whether paid or not.
• Any salary paid or allowance made by the employer (or former employer or somebody on their behalf) though not due or before it was due to the taxpayer. For example, a salary paid in advance for a project.
• Arrears on salary

Further, the income tax law(( Section 17, Income Tax Act, 1961.)) clarifies that the term ‘salary’ includes:

• Wages
• Any annuity or pension
• Gratuity
• Fees, commissions, profits
• Any advance of salary
• Provident Fund amount (on yearly basis)

Following are the basic components of an employee’s salary:

• Basic income: It is the base remuneration which exists before any deduction or increment is made and is a fixed amount.
• Allowances: Above the basic income, an employee may be given monetary benefit to meet expenses in the form of allowances. These may be:
  • Housing rent allowance
  • Dearness allowance
  • Medical or conveyance allowance.
• Provident Fund (PF): This is in the form of pension, where equal contributions from the employer and employee are collected in a PF fund throughout the latter’s service tenure. Currently, the Government of India makes the contribution on behalf of the employer for the first 3 years of service of a new employee, to boost employment in India.
• Gratuity: This is also a retirement benefit payable to those who have been employed by a company for at least 5 years. This is also deducted from the employee’s salary throughout their service tenure.
• Professional Tax: This tax is payable to the State Government for practising a certain profession. It is levied on the monthly salary.

The gross salary of an employee is the total of their basic salary and allowances, before any deductions are made. The Cost to Company (CTC) or ‘package’ offered to an employee includes this gross salary and the PF and gratuity. The in-hand income or salary is therefore always lesser than CTC.