INCOMES EXEMPT FROM TAX

Group 2

Shahid | Somdeep | Mampi | Siddharth | Chinmay | Rahul | Avinash

Section B, Semester V, Bachelor of Business Management (2013-2016)

A Fiscal Policy & Tax Management Presentation

Income

“…which comes in as the periodical product of one’s work, business, land, or investments

(commonly expressed in terms of money)…”

Oxford English Dictionary

Even though generally of a recurring character, Income may not necessarily be recurring in nature.

Kamakshya Narain Singh of Ramgarh vs CIT (1943)

Under Section 2 (24),

“Income”

includes

• Profits & Gains• Dividend• Voluntary Contributions

received by a Trust• Perquisites in the hands of

an Employee/Director• Special Allowances or

Benefit• Dearness Allowance• Capital Gains• Insurance Profit• Income of Co-Op banking• Lottery Winnings• Provident Fund of Employees• Keyman Insurance Policy• Gift exceeding Rs 50,000/-• Consideration for Shares

Issue

Exemptible Income is not included in the computation

of income. Exemption can never exceed the amount of

income.

Deduction is generally given from income chargeable to tax.

Deduction can be less than or equal to or more than the

amount of income. If amount deductible is more than the amount of income, the resulting amount will

be taken as loss

Deduction & Exemption - Example

House Rent Allowance is an exemption under Section 10(13a) of the Indian Income Tax Act. It will not be even taken into account during

computation of Gross Income.

After computation, if the gross income is Rs 5 lakh out of which Rs 1 lakh is invested in an

instrument that offers deduction (like the Equity Linked Savings Scheme or Health Insurance),

the total taxable income (income on which tax is due) reduces to Rs 4 lakh.

Incomes Exempt from Tax

Daily Allowance of Lawmakers [Sec 10(17)]

Nature of Allowance Exemption in the case of Members of

Parliament

Exemption in the case of Members of State Legislature

Case -1 Daily Allowance Entire Amount Entire Amount

Case-2 Any other allowances received by MPs under

MP (Constituency Allowance) Rules, 1986

Entire Amount NA

Case-3 Constituency allowance received by Members of

State Legislature

NA Entire Amount from the assessment year

2007-08

Section 10 (17) provides exemption to MPs and State Legislatures in respect of following allowances:

The expression “Local Authority” means Panchayat

and Municipalities as referred to in Articles 243(d) and 243P(e), legally entitled

to or entrusted by the Government of India, with

the control of a Municipal or a local fund.

Exemptible Income of Local Authority [Sec 10(20)]

Income under the heads “Income from House

Property”, “Capital Gains” or “Income from other

sources”

Income from business carried on by it , which

accrues or arises from the supply of a commodity or

services (not water or electricity) within its own

jurisdictional area

Income from business from supply of water or

electricity within or outside its own jurisdictional area

Except the income from supply of a commodity/service (other than water & electricity)

outside it’s own jurisdiction.

Specified News Agency

A news agency that applies it’s income or

accumulates it for application solely for

collection and distribution of news. ANI and PTI are few of

the specified news agencies.

Income from Specified News Agency [Sec 10(22B)]

Its Exemptible Income is applied or accumulated solely for collection and distribution of news and does not distribute that

income in any manner to its members.

The notification granting exemption, will have effect not exceeding 3 assessment years (including an assessment year or years commencing before the date of issue of such notification)

If the Central Government is satisfied that a news agency under this clause is not using or accumulating its income solely for collecting and distributing the news, it may at any point, after

giving a reasonable opportunity of showing cause, rescind the notification to such agency.

Applications

BBMP, had earned an income attributed to sale of pesticides as follows: Rs 4,50,000 from Bangalore and Rs 2,30,000 from Pune. What is the taxable income in this case?

Out of the Rs 10,00,000 the Press Trust of India earned as income, it allocates Rs 4,00,000 for its operation of fielding correspondents and the rest as a remuneration for its members. How much is it liable for exemption?

Rs 2, 30, 000 is the taxable income as the income from supply of commodity/services is exempt under a local authority’s own jurisdiction but taxable (other than Water & Electricity) for outside its jurisdiction.

It is liable to be exempted for Rs 4,00,000 as the income allocated for sole purpose of collection or distribution of news by a specified news agency is Tax-Exempt.

Educational Scholarship (Sec.10 (16))

Finance by Government not necessary.

No further enquiry, if object is to meet cost of education

Incidental expenses.

Application

X studying at a Private University receives a Government Scholarship of Rs 30, 000 and receives another educational scholarship of Rs 1,00,000 from a non-governmental trust. His annual fees is Rs 1,00,000. How much is taxable ?

Nil. Because Cost of Education takes within its ambit not only Tuition fees but all the other incidental expenses incurred for acquiring education

Agricultural Produce market committee

Section 10 (26AAB) provides for tax exemption with respect to the income of an Agricultural Produce Marketing Committee or Board which has been constituted under any law for the purpose of regulating the marketing of agricultural produce.

Applicability: This amendment has been made applicable with effect from 1st April, 2009 and shall accordingly apply for assessment year 2009-10 and subsequent assessment years.

Any income accruing or arising to Coffee Board, Rubber Board, Tea Board, Tobacco Board, Agricultural and Processed Food Products Export Development Authority, Spices Board , and Marine Products Export Development Authority is exempt from tax .

Subsidy received by planters (Sec. 10 [31])

Subsidies received by the assesse engaged in the business of growing and manufacturing rubber, coffee, cardamom, (or such commodities notified by the Central Govt. is exempt from tax. The subsidy should be received from or through the concerned Board under any scheme for replantation or for rejuvenation or consolidation of areas used for their cultivation.

If the income of an individual includes the income of his minor child in terms of section 64(1A), such an individual is entitled to exemption of Rs 1,500 in respect of each minor child if the income of such minor is includible under section 64(1A). The exemption cannot exceed the income of any minor so includible in the total income of the individual.

References

• 52nd Edition, Taxmann’s Direct Taxes, Singhania & Singhania

• Income Tax Government Portal

• TaxGuru.in

• YourFinanceBook.com