Unit – 2: Exempted Incomes
Q.1. List out the incomes exempted from tax under Sec.10.
Ans: Income Exempted from tax under Sec. 10:
1) Agriculture Income [Sec.10
(1)]: Agriculture income is fully exempted
from tax u/s 10(1) and as such does not form part of total income. As per
Section 2(1A) agriculture income includes:
a)
Any
rent or revenue derived from land which is situated in India and is used for
agricultural purpose;
b)
Any
income derived from such land by agriculture or by the process employed to
render the product fit for market or by sale of such produce by the cultivator
or receiver of rent in Kind.
c)
Any
income derived from any building provided the following conditions were
satisfied:
Ø The
building is or on the immediate vicinity of the agricultural land;
Ø It is
occupied by the cultivator or receiver of rent or revenue
Ø It is
used as a dwelling house or store house or out house ;
Ø The
land is assessed to land revenue and it is not situated within the specified
area.
2)
Receipt of share in
HUF as a member [Sec. 10(2)]: The share in the
profit of the HUF received by the member of HUF is wholly exempt.
3)
Receipt of share of
profit in Partnership firm as partner [Sec.10 (2A)]: The share in the profit of the firm received by the partner
is wholly exempt.
4)
Lump sum receipt from
LIC: Any sum received under a life insurance policy,
including the sum allocated by way of bonus on such policy. Exceptions:
a. Any sum received under sub-section (3)
of section 80DD or sub-section (3) of section 80DDA; or
b. Any sum received under a Key man
insurance policy; or
c. Any sum received under an insurance
policy issued on or after 1.4.2003 in respect of which the premium payable for
any of the years during the term of the policy exceeds 20% of the actual
capital sum assured:
Provided that the provisions shall not apply to
any sum received on the death of a person:
Explanation to sub-section (3) of section 80C the
sum assured will not include any premium agreed to be returned or any benefit
by way of bonus.
5) Interest on securities
[Sec.10 (15)]: The interest on following securities is exempted:
a. interest on notified securities, bonds
and certificates 12 years NSAC, National Defense Gold Bonds 1980, Post Office
Cash certificates (5 years), National plan saving certificate (12 years), Post-
Office National saving certificate (12 or 7 years), Post Office saving Bank
A/c, etc.
b. Interest on capital investment bonds
of individual and
HUF.
c. Interest received by NRI from notified
bonds.
d. Interest on notified bonds, debentures
of Public Sector Company.
e. Interest on bonds issued by state
pooled finance entity & notified by central government
6) Educational
Scholarship [Sec. 10(16)]: Scholarship granted
to meet the cost of education is exempt. Cost of education includes tuition
gees and all other incidental expenses. It is not necessary that Govt should
finance scholarship.
7) Family pension [Sec. 10(19)]: Family pension received by widow or children or nominated heirs
of the armed force of union is exempt from tax, provided his death is on
operational duty.
8) Income
of Professional Institution [Sec. 10(23A)]: Any income of professional institution is exempt except house
property, interest, and dividend and by rendering any specific service. Conditions for exemptions:
a. The institution is established for
purpose of control, supervision and regulation on profession of law, medicine,
accountancy, engineering and other notified profession.
b. The income is applied wholly for the
object for which it is established
c. Approved by central government.
9) Income
of a news agency [Sec. 10(22B)]: The income of a news agency for any
assessment year is exempt, when:
a)
It is
set up in India solely for collection and distribution of news.
b)
The
news agency has been notified for this purpose for the relevant assessment
year;
c)
It
applies its income or accumulates it for application solely for collection and
distribution of news; and
d)
If
does not distribute its income in any manner to its members.
10) Income
of a local authority [Sec. 10(23A)]: The entire income shall be exempted
except the income derived from the supply of commodity or service other than
water and light, outside its own jurisdiction area.
11) Minor
income [Sec. 10(32)]: Any income of minor
included in the income of his parents as per Sec. 64 (1 A) is exempt up to Rs.
1500/- per child per annum.
12) Dividend
from domestic company [Sec. 10 (34)]:
Any income by way of dividends referred to in section 115-O. As per sec-115 O
dividend declared by domestic company on which corporate dividend tax is paid.
13) Dividend/
income from units [Sec. 10(35)]: Any income on units
of mutual funds or units of UTI Provided that this clause shall not apply to
any income arising from transfer of units of the Administrator of the specified
undertaking or of the specified company or of a mutual fund, as the case may
be.
14) Long
Term Capital Gains (LTCG) on Agricultural Land [Sec. 10 (37)] (Available to
Individual or HUF): Capital gain arising
from transfer of urban agricultural land. The land was used for agricultural
purpose for 2 years immediately preceding the date of transfer by HUF or
Individual or parents. Such transfer is by way of compulsory acquisition under
law.
15) LTCG on Securities
on the following securities [Sec. 10(38)]:
a. LTCG on equity or equity oriented
units.
b. Such transfer is on or after 1-4-2004.
c. Such transaction is chargeable to
securities transaction tax.
Q.2. Explain the
provisions of Income tax Act, 1961 in respect to industrial units in Free Trade zone.
1. CONDITIONS TO BE SATISFIED: In order
to get deduction, an undertaking must satisfy the following conditions:
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Condition 1:
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It must begin manufacture or production in free trade zone :
It has begun or begins to manufacture or produce during the
previous year relevant to the assessment year—
(a) commencing on or after 1-4-1981, in any free trade zone; or
(b) commencing on or after 1-04-1994, in any software technology
park or electronic hardware technology park or;
(c) commencing on or after the 1-04-2001 in any special economic
zone;
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Conditions 2 :
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It should not be formed by splitting / reconstruction of
business.:
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Conditions 3 :
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It should not be formed by transfer of old machinery: it is
not formed by the transfer to a new business of machinery or plant previously
used for any purpose.
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Conditions 4 :
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Sale construction
should be remitted to India in convertible foreign exchange.:
Sale consideration
should be remitted to India in convertible foreign exchange, within a period
of six months from the end of the previous year or, within such further
period as the competent authority may allow in this behalf.
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Condition 5 :
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Report of Chartered Accountant :
The deduction under [this section] shall not be admissible for
any assessment year beginning on or after the 1st day of April, 2001, unless
the assessee furnishes in the prescribed Form 56 , along with the return of
income, the report of an Chartered Accountant, as defined in the Explanation
below sub-section (2) of section 288, certifying that the deduction has been
correctly claimed in accordance with the provisions of this
section.
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Condition 6 :
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Return of income should be submitted in time.:
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2. AMOUNT OF DEDUCTION – GENERAL PROVISIONS:
If the aforesaid conditions are satisfied , the deduction u/s 10A may be
computed as under :
Profits of the business of eligible undertaking = Export Turnover of eligible undertaking/Total Turnover of eligible undertaking.
3. PERIOD AND RATE OF DEDUCTION: Out of the
total income of an assessee a deduction of 90% of such profits and gains as are
derived by an undertaking from the export of articles, or things or computer
software shall be allowed. Rate of deduction for unit set up in Special
Economic Zone on or after 1-4-2003 shall be as follows for first 10 assessment
years:
First 5 Years – 100 % of
profits and gains.
Next 2 Years : 50% of
such Profit and Gains is deductible for further 2 assessment years.
Next 3 Years :
for the next three consecutive assessment years, so much of the amount not
exceeding 50% of the profit as is debited to the profit and loss account of the
previous year in respect of which the deduction is to be allowed and credited
to a reserve account.
4. TRANSFER UNDER A SCHEME OF AMALGAMATION OR DEMERGER: In case an
undertaking eligible for deduction under this section is transferred, before
the expiry of the specified period, to another Indian company in a scheme of amalgamation
or demerger:
(a) No deduction shall be admissible under
this section to the amalgamating or the demerged company for the previous year
in which the amalgamation or demerger takes place ; and
(b) The provisions of this section shall apply
to the amalgamated or the resulting company as if the amalgamation or demerger
had not taken place.
Q.3. Explain the
provisions of Income tax Act, 1961 in respect to industrial units established in SEZ.
Ans: SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLISHED UNITS IN
SPECIAL ECONOMIC ZONE [SECTION 10AA]:
1.
CONDITIONS TO BE SATISFIED: The
following conditions should be satisfied to claim deduction u/s 10AA:
Condition 1 : Assessee, being an entrepreneur as
referred to in clause (j) of section 2 of the Special Economic Zones
Act, 2005. Entrepreneur is a person who has been granted a letter of approval
by the Development Commissioner to set a unit in a Special Economic Zone.
Conditions 2
: The Unit in
Special Economic Zone who begins to manufacture or produce articles or things
or provide any services during the previous year relevant to any assessment
year commencing on or after the 1st day of April, 2006.
Conditions 3
: It is not formed
by the splitting up, or reconstruction, of a business already an existence.
Conditions 4
: It not formed by
the transfer to a new business, of old plant and machinery. However, it can be
formed by transfer of old plant or machinery to the extent of 20%.
Condition 5
: The assessee has
income from export of articles or thing or from services from such unit. In
other words, the assessee has exported goods or provided services out of India
from the Special Economic Zone by land, sea , air, or by any other mode,
whether physical or otherwise.
Conditions 6
: Books of Accounts
of the taxpayer should be audited. The Tax payer should submit Audit Report in
Form No.56F along with the return of income.
2.
AMOUNT OF DEDUCTION: Deduction depends
upon quantum of Profit derived from Export of Articles or things or services
(including computer software). It is calculated as under: (Profit of the
Business of the undertaking X Export turnover)/Total Turnover of the
business
Deduction for
First 5 Assessment Years – 100%
of Profits and Gains derived for a period of five consecutive assessment years
beginning with the assessment year relevant to the previous year in which the
Unit begins to manufacture or produce such articles or things or provide
services.
Deduction for 6th Assessment
Year to 10th Assessment Years: 50% of such Profits and Gains for further
five assessment years and thereafter;
Deduction for 11th Assessment
Year to 15th Assessment Year: Amount not exceeding 50% of the profit as is
debited to the profit and loss account of the previous year in respect of which
the deduction is to be allowed and credited to a reserve account to be created
and utilized for the purposes of the business of the assessee.
3.
CONSEQUENCES FOR MERGER AND DEMERGER:
Where any undertaking is transferred, before the expiry of the period specified
in this section, to another undertaking, under a scheme of amalgamation or
demerger, no deduction shall be admissible under this section to the
amalgamating or the demerged Unit for the previous year in which the
amalgamation or the demerger takes place.
Q.4. Explain the
provisions of Income tax Act, 1961 in respect to EOU.
Ans: 100% EXPORT
ORIENTED UNDERTAKINGS (100% E.O.U.)
[Sec - 10B]
A deduction of
such profits and gains as are derived by a hundred percent export-oriented
undertaking from the export of articles or things or computer software for a
period of ten consecutive assessment years beginning with the assessment year
relevant to the previous year in which the undertaking begins to manufacture or
produce articles or things or computer software, as the case may be, shall be
allowed from the total income of the assessee. The Provisions of Sec 10B are
given below:
1. CONDITIONS TO
BE SATISFIED: This section
applies to any undertaking which fulfils all the following conditions, namely:
a)
It manufactures or produces any
articles or things or computer software;
b)
It is not formed by the splitting up,
or the reconstruction, of a business already in existence:
c)
No deduction under this section shall
be allowed to an assessee who does not furnish a Return of his Income on or
before the due date specified under sub-section (1) of section 139.
d)
Should not be formed as a result of
the re-establishment, reconstruction or revival by the assessee of the business
of any such undertaking
e)
It is not formed by the transfer to a
new business of machinery or plant previously used for any purpose.
f)
Audit Report should be submitted in
Form No. 56G.
2.
AMOUNT OF DEDUCTION: If the aforesaid
conditions are satisfied , the deduction u/s 10B may be computed as under :
(Profit of the Business of the undertaking X Export turnover)/Total
Turnover of the business.
3. PERIOD OF
DEDUCTION: This deduction
shall be allowed for a period of 10 consecutive Assessment Years beginning with
the assessment year relevant to the previous year in which the undertaking
begins to manufacture or produce such articles, or things or computer software.
No deduction under section 10B shall be allowed to any undertaking from the
assessment year beginning on the 1st day of April, 2010 and subsequent years.
4. TRANSFER UNDER
A SCHEME OF AMALGAMATION OR DEMERGER: In case an undertaking eligible for
deduction under this section is transferred, before the expiry of the specified
period, to another Indian company in a scheme of amalgamation or demerger:
(a) No deduction
shall be admissible under this section to the amalgamating or the demerged
company for the previous year in which the amalgamation or demerger takes place
; and
(b) The
provisions of this section shall apply to the amalgamated or the resulting
company as if the amalgamation or demerger had not taken place.