CU-BCOM-SEM-V-Income Tax Law And Accounts-Second Draft

exemption is Rs.19,200 per year), Medical reimbursement (for which the maximum exemption is Rs.15,000), and all other reimbursements provided the actual bills in respect of the expenses incurred.  The result is your net income from salary. 5.4 SUMMARY  EPF comes under Employee Provident Fund and Miscellaneous Provisions Act, 1952. EPF is an excellent saving scheme for building a sufficient retirement corpus for salaried employees. Over the career time, one shifts a job multiple time. But the benefit of this scheme is added continuously under UAN. EPF can be a good investment plan as it also comes with tax benefits. It ensures higher earnings and improves savings for employees in the long-term.  However, there are certain limitations, as well. There can be a better investment plan or alternative, which is an ELSS fund (tax saver fund). ELSS fund is a type of equity funds that helps investors gets inflation-beating returns for retirement. With tax- saving and lower lock-in period high returns, this tax saver fund attracts many investors.  A composite claim is a combination of different forms, used for the withdrawal of money from EPF offline. This EPF form combines Form 19, Form 10C, and Form 31. Individually, Form 19 is for PF final settlement (claim form); Form 10C is for pension withdrawal, and form 31 is for partial PF withdrawals.  However, suppose an individual has its UAN linked with an AADHAAR CARD and bank account. In that case, they can submit this single form directly to EPFO without employer attestation. Similarly, if UAN is not linked to AADHAAR CARD and bank account, then employer attestation is required on the form.  The UMANG(Unified Mobile Application for New-age Governance) app has been launched by the Government of India to drive mobile governance in India. It provides a single platform for all Indian citizens to access various e-government services.  Besides, this app helps in checking your EPF balance through UAN Number. One can view their EPF passbook, raise a claim (E.g., withdrawal of PF amount) and track EPF claims. One can register on the app by getting a one-time password sent to their respective mobile number. Also, through this app the EPF claim status can be tracked. It is essential to link AADHAAR CARD to UMANG APP and UAN Number.  The nature of work and its role in society are changing in ways that have sparked considerable debate among social critics and scholars from multiple disciplines who study work. In this book we have analysed how the nature of work and the occupational structure in the United States are changing and discussed the 101 CU IDOL SELF LEARNING MATERIAL (SLM)

implications of these changes for how the tools of occupational analysis and classification can be used to bundle jobs together into work structures.  We have attempted to sort out what is changing and what is not and to provide an interpretative framework that will aid organizational decision makers and members of the workforce as they go about making choices that will not only shape the world of work but also the future of numerous stakeholders. In this final chapter, we present our key findings, discuss their implications for decision makers in both the civilian and military sectors, and suggest directions for future research. 5.5 KEYWORDS  Global Method - Under the global method, the profits of each member of a multinational enterprise (MNE) are not calculated based on arm's length dealings, but rather the total profit of the enterprise is allocated to the members of the multinational enterprise based on, for example, the turnover of each member, the expenses incurred by each member or the labour cost of each member.  Global Trading - Term used to describe transactions carried out by, inter alia, investment banks and securities dealers, involving financial instruments, financial services, and financial goods. Also known as 24-hour trading since the transactions is carried out continuously during a day in financial markets worldwide.  Going Concern - A business, which is operating, e.g., at the time of takeover. The advantage of taking over a business as a going concern (if it is operating profitably) is usually recognized by a payment for goodwill as well as for other assets.  Hedging Transaction - Transaction where a person tries to protect himself against price, interest rate or foreign exchange rate fluctuations, for example, by buying or selling commodities or currencies using derivative contracts such as forwards, futures, options, and swaps.  Hidden Reserves - Reserves which are not disclosed on the balance sheet of an enterprise, either by overvaluing debts or undervaluing assets. 5.6 LEARNING ACTIVITY 1. Create a survey on Tax Treatment Provident Fund. ___________________________________________________________________________ ___________________________________________________________________________ 2. Create a session on Perquisites Exempted from Tax for All Employees. 102 CU IDOL SELF LEARNING MATERIAL (SLM)

___________________________________________________________________________ ___________________________________________________________________________ 5.7UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. What are Perquisites? 2. What are Salaries? 3. Define the term Salary Head? 4. Describe the Provident Fund? 5. Write the type of PF? Long Questions 1. Explain the concept of IncomefromSalaries. 2. Explain Computation of Income from Salary Head. 3. Discuss the Taxable Incomes under Salary Head. 4. Illustrate the Perquisites Exempted from Tax for All Employees. 5. Examine the Perquisites Taxable for Specified Employees only. B. Multiple Choice Questions 1. What is the employer’s contribution to unrecognized provident fund? a. Is exempt from tax b. 10% of Salary of employee is taxable c. Is exempted subject to maximum of 2/5 of salary of the employee d. Is fully taxable 2. What is the perquisite if a domestic servant is engaged by the employer and salary is paid by him? a. Taxable in the hands of all employees b. Not taxable in the hands of both specified and non-specified employers c. Taxable in the hands of specified employees only d. Taxable to the extent of ` 120 per person in the hands of all employees. 3. Which of the following is taxable under the head ‘salaries? 103 CU IDOL SELF LEARNING MATERIAL (SLM)

a. Salary received by a Member of State Legislature. b. Commission received by an employee director of a company c. Family pension received d. Both (a) and (b) 4. Who among the following is a specified employee? a. A director of a company b. An employee drawing a salary of ` 15,000 p.m. c. A person who is an owner of equity shares carrying 10% voting power in the employer company. d. Both (a) and (b) 5. What is the rate of interest accruing to a particular employee by virtue of his employer’s contribution to Recognized Provident Fund is 12.5% p. a. In such a case a. Total Interest accrued is taxable b. Total Interest accrued is exempt c. Only 10% Interest is taxable d. Only 3% of interest is taxable Answers 1-a, 2-c, 3-b, 4-d, 5-d 5.8 REFERENCES References book  The new refugees. (Americans who give up citizenship to save on taxes)\". Forbes. 1994-11-21. Archived from the original on 2006-02-27.  \"Foreign Earned Income Exclusion\", Internal Revenue Service, United States Department of the Treasury.  Panozzo, Chantal (18 February 2015). \"When American Expats Don't Want Their Kids to Have U.S. Citizenship\". Textbook references  Attiya Waris, 2011. \"Transfer Pricing\". Tax Justice Network. Tax justice Network.  Sharife, Khadija (2011-06-18). \"'Transparency' hides Zambia's lost billions\". Al- Jazeera. Retrieved 2011-07-26. 104 CU IDOL SELF LEARNING MATERIAL (SLM)

 Kristina Froberg and (2011). \"Introduction\". Bringing the billions back: How Africa and Europe can end illicit capital flight. Stockholm: Forum Syd Forlag. Website  https://www.nap.edu/read/9600/chapter/9#264  https://www.bankbazaar.com/tax/how-calculate-taxable-income-from-salary.html  https://taxadda.com/taxability-for-specified-employees/ 105 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 6 – INCOME HEADS PART II STRUCTURE 6.0 Learning Objectives 6.1 Introduction 6.2 Income from House Property 6.2.1 Annual value 6.2.2 Cases where income from house property is taxable under other heads of income 6.2.3 Cases where Income from House Property is not taxable at 6.3 Calculation 6.4 HRA 6.5 Summary 6.6 Keywords 6.7 Learning Activity 6.8 Unit End Questions 6.9 References 6.0 LEARNING OBJECTIVES After studying this unit, you will be able to:  Describe the concept of Income from House Property.  Illustrate the Cases where income from house property is taxable under other heads of income.  Explain the Cases where Income from House Property is not taxable at income head. 6.1 INTRODUCTION Property in the abstract is what belongs to or with something, whether as an attribute or as a component of said thing. In the context of this article, it is one or more components (rather than attributes), whether physical or incorporeal, of a person's estate; or so belonging to, as in being owned by, a person or jointly a group of people or a legal entity like a corporation or even a society. Property that jointly belongs to more than one party may be possessed or controlled thereby in very similar or very distinct ways, whether simply or complexly, whether equally or 106 CU IDOL SELF LEARNING MATERIAL (SLM)

unequally. However, there is an expectation that each party's will (rather discretion) about the property be clearly defined and unconditional, to distinguish ownership and easement from rent. The parties might expect their wills to be unanimous, or alternately every given one of them, when no opportunity for or possibility of dispute with any other of them exists, may expect his, her, it’s or their own will to be sufficient and absolute. The Restatement of Property defines property as anything, tangible, or intangible whereby a legal relationship between persons and the state enforces a possessory interest or legal title in that thing. This mediating relationship between individual, property and state are called a property regime. In sociology and anthropology, property is often defined as a relationship between two or more individuals and an object, in which at least one of these individuals holds a bundle of rights over the object. The distinction between \"collective property\" and \"private property\" is regarded as confusion since different individuals often hold differing rights over a single object. Types of property include real property personalproperty private property (property owned by legal persons, business entities or individual natural persons), public property (state owned or publicly owned and available possessions) and intellectual property although the last is not always as widely recognized or enforced. An article of property may have physical and incorporeal parts. A title, or a right of ownership, establishes the relation between the property and other persons, assuring the owner the right to dispose of the property as the owner sees fit. The unqualified term \"property\" is often used to refer specifically to real property. Often property is defined by the code of the local sovereignty and protected wholly or more usually partially by such entity, the owner being responsible for any remainder of protection. The standards of proof concerning proofs of ownerships are also addressed by the code of the local sovereignty, and such entity plays a role accordingly, typically somewhat managerial. Some philosophers assert that property rights arise from social convention, while others find justifications for them in morality or in natural law. Various scholarly disciplines (such as law, economics, anthropology, or sociology) may treat the concept more systematically, but definitions vary, most particularly when involving contracts. Positive law defines such rights, and the judiciary can adjudicate and enforce property rights. According to Adam Smith, the expectation of profit from \"improving one's stock of capital\" rests on private property rights. Capitalism has as a central assumption that property rights encourage their holders to develop the property, generate wealth, and efficiently allocate resources based on the operation of markets. From this has evolved the modern conception of property as a right enforced by positive law, in the expectation that this will produce more wealth and better standards of living. However, Smith also expressed a very critical view on the effects of property laws on inequality: 107 CU IDOL SELF LEARNING MATERIAL (SLM)

\"Wherever there is great property, there is great inequality. Civil government, so far as it is instituted for the security of property, is instituted for the defence of the rich against the poor, or of those who have some property against those who have none.\" In his text The Common Law, Oliver Wendell Holmes describes property as having two fundamental aspects. The first, possession, can be defined as control over a resource based on the practical inability of another to contradict the ends of the possessor. The second, title, is the expectation that others will recognize rights to control resource, even when it is not in possession. He elaborates the differences between these two concepts and proposes a history of how they came to be attached to persons, as opposed to families or to entities such as the church. Most legal systems distinguish between different types of property, especially between land and all other forms of property goods and chattels, movable property, or personal property, including the value of legal tender if not the legal tender itself, as the manufacturer rather than the possessor might be the owner. They often distinguish tangible and intangible property. One categorization scheme specifies three species of property: land, improvements, and personal property. In common law, real property is the combination of interests in land and improvements thereto, and personal property is interest in movable property. Real property rights are rights relating to the land. These rights include ownership and usage. Owners can grant rights to persons and entities in the form of leases, licenses, and easements. Throughout the last centuries of the second millennium, with the development of more complex theories of property, the concept of personal property had become divided into tangible property (such as cars and clothing) and intangible property (such as financial instruments, including stocks and bonds; intellectual property, including patents, copyrights and trademarks; digital files; communication channels; and certain forms of identifier, including Internet domain names, some forms of network address, some forms of handle and again trademarks). Treatment of intangible property is such that an article of property is, by law or otherwise by traditional conceptualization, subject to expiration even when inheritable, which is a key distinction from tangible property. Upon expiration, the property, if of the intellectual category, becomes a part of public domain, to be used by but not owned by anybody, and possibly used by more than one party simultaneously due to the inapplicability of scarcity to intellectual property. Whereas things such as communications channels and pairs of electromagnetic spectrum band and signal transmission power can only be used by a single party at a time, or a single party in a divisible context, if owned or used at all. Thus far or usually those are not considered property, or at least not private property, even though the party bearing right of exclusive use may transfer that right to another. 108 CU IDOL SELF LEARNING MATERIAL (SLM)

In many societies the human body is considered property of some kind or other. The question of the ownership and rights to one's body arise in general in the discussion of human rights, including the specific issues of slavery, conscription, rights of children under the age of majority, marriage, abortion, prostitution, drugs, euthanasia, and organ donation. 6.2 INCOMEFROM HOUSEPROPERTY Rental income from a property being building or land appurtenant thereto of which the taxpayer is owner is charged to tax under the head “Income from house property”. Rental income in the hands of owner is charged to tax under the head “Income from house property”. Rental income of a person other than the owner cannot be charged to tax under the head “Income from house property”. Hence, rental income received by a tenant from sub- letting cannot be charged to tax under the head “Income from house property”. Such income is taxable under the head “Income from other sources” or profits and gains from business or profession. Rental income from a property, being building or land appurtenant thereto, of which the taxpayer is the owner is charged to tax under the head “Income from house property”. To tax the rental income under the head “Income from house property”, the rented property should be building or land appurtenant thereto. Shop being a building, rental income will be charged to tax under the head “Income from house property”. Under the head ‘Income from House Property’ the charging section is section 22. U/S 22 the annual value of any property consisting of any building or land appurtenant thereto of which the assessee is the owner is chargeable to tax under the head ‘Income from house property’. Thus, the following three points must be considered for computing income under this headthere must be a building or a land appurtenant thereto; The assessee must be the owner of such property. Here owner means the legal owner and not the beneficial owner; the annual value of such property is taxable 6.2.1 Annual value Annual value means the sum for which the property might reasonably be let year after year. So, the focus of the law is on the earning capacity of the house and not the actual income only. To ascertain the annual value, the following four factors should be considered  Rent received or receivable- It refers to the actual rent received or receivable for the year.  Fair Rent-It means rent of similar type of property in the same locality.  Municipal Value- The value assessed by the Municipal Authority for the purpose of imposing municipal tax.  Standard Rent- Rent fixed under the Rent Control Act. 109 CU IDOL SELF LEARNING MATERIAL (SLM)

Figure 6.1: Annual Value 6.2.2 Cases where income from house property is taxable under other heads of income Under the following circumstances income earned from house property is not taxable under the head income from house property but under other heads of income  Where the owner uses his own house property for the purpose of his business or profession, then income from such house is taxable under the head ‘Profits and gains of business or Profession’ and not under the head ‘income from house property’.  Where a tenant keeps a sub-tenant in his/her rented premises then income from such sub-lease is taxable under the head ‘income from other sources’ as the assessee is not the legal owner of the house.  Where the assessee lets out his house to the employees of his business and such letting out is necessary for the smooth running of the business, then income from such house is taxable under the head ‘Profits & Gains from Business or profession’.  Where the assessee lets out the house along with plant & machinery and furniture and the `rental income is inseparable, then income from such letting out is taxable under the head ‘Profits and gains of business or Profession’ provided such letting out is the business of the assessee, otherwise the same will taxable under the head ‘Income from other sources. 6.2.3 Cases where Income from House Property is not taxable at In the following cases the income from house property is not taxable at all  One self-occupied house in occupation of an Ex-Ruler.  Income from farm house.  Property income of Local Authority.  Property income of approved Scientific Research Association. 110 CU IDOL SELF LEARNING MATERIAL (SLM)

 Property income of Sports Association.  Property income of registered Trade Union.  Property income of Political Party.  Income from house property held for charitable purpose. 6.3 CALCULATION If you have a house/flat that is either rented out or kept vacant you need to know about income from house property for income tax calculation purposes. This is also important for tax saving if you want to set off the interest you are paying on any home loan taken for the same house against the income from house property. A person's gross total income chargeable to tax is a sum of income under various heads such as 'income from salary', 'income from other sources' etc. One of these heads of income is 'Income from House Property'. While filing returns for the FY 2018-19, an individual is required to provide the break-up of the income from house property. Income from House Property covers the rent earned from the House property which is chargeable to tax. Sometimes, the owner may have to pay tax on 'deemed rent' in case the property is not let out. The income from house property is added/ included in a person's gross total income only if it satisfies three essential conditions: Table 6.1: Calculation of Income from House property 6.4 HRA Renting, also known as hiring or letting, is an agreement where a payment is made for the temporary use of a good, service or property owned by another. A gross lease is when the tenant pays a flat rental amount, and the landlord pays for all property charges regularly 111 CU IDOL SELF LEARNING MATERIAL (SLM)

incurred by the ownership. An example of renting is equipment rental. Renting can be an example of the sharing economy. A rental agreement is a contract of rental, usually written, between the owner of a property and a renter who desires to have temporary possession of the property; it is distinguished from a lease, which is more typically for a fixed term. As a minimum, the agreement identifies the parties, the property, and the term of the rental, and the amount of rent for the term. The owner of the property may be referred to as the lesser and the renter as the lessee. There is typically an implied, explicit, or written rental agreement or contract involved to specify the terms of the rental, which are regulated and managed under contract law. Examples include letting out real estate (real property) for the purpose of housing tenure (where the tenant rents a residence to live in), parking space for a vehicle, storage space, whole or portions of properties for business, agricultural, institutional, or government use, or other reasons. When renting real estate, the person or party who lives in or occupies the real estate is often called a tenant, paying rent to the owner of the property, often called a landlord. The real estate rented may be all or part of almost any real estate, such as an apartment, house, building, business office or suite, land, farm, or merely an inside or outside space to park a vehicle, or store things all under real estate law. The tenancy agreement for real estate is often called a lease, and usually involves specific property rights in real property, as opposed to chattels. A rental agreement is often called a lease, especially when real estate is rented. In addition to the basics of a rental (who, what, when, how much), a real estate rental may go into much more detail on these and other issues. The real estate may be rented for housing, parking a vehicle, storage, business, agricultural, institutional, or government use, or other reasons.  Who: The parties involved in the contract, the lesser (sometimes called the owner or landlord) and the lesseeis identified in the contract? A housing lease may specify whether the renter is living alone, with family, children, roommate, and visitors. A rental may delineate the rights and obligations of each of these. For example, a \"sub- let\" to a stranger might not be permitted without permission of the landlord. This also applies to whether pets may be kept by the renter. On the other hand, the renter may also have specific rights against intrusions by the landlord, except under emergency circumstances. A renter is in possession of the property, and a landlord would be trespassing upon the renter's rights if entry is made without proper notice and authority.  What: Rented real estate may include all or part of almost any real property, such as an apartment, house, building, business office(s) or suite, land, farm, or merely an inside or outside space to park a vehicle, or store things. The premises rented may include not only specific rooms, but also access to other common areas such as off- 112 CU IDOL SELF LEARNING MATERIAL (SLM)

street parking, basement or attic storage, laundry facility, pool, roof-deck, balconies, etc. The agreement may specify how and when these places may be used, and by whom. There may be detailed description of the current condition of the premises, for comparison with the condition at the time the premises are surrendered.  When: the term of the rental may be for a night weeks, months, or years. There may be statutory provisions requiring registration of any rental that could extend for more than a specified number of yearsto be enforceable against a new landlord.  A typical rental is either annual or month-to-month, and the amount of rent may be different for long-term renters (because of lower turnover costs). Leaving a long-term lease before its expiration could result in penalties or even the cost of the entire agreed period (if the landlord is unable to find a suitable replacement tenant, after diligent pursuit). If a tenant stays beyond the end of a lease for a term of years (one or more), then the parties may agree that the lease will be automatically renewed, or it may simply convert to a tenancy at will (month-to-month) at the pro-rated monthly cost of the previous annual lease. If a tenant at will is given notice to quit the premises, and refuses to do so, the landlord then begins eviction proceedings. In many places it is completely illegal to change locks on doors, or remove personal belongings, let alone forcibly eject a person, without a court order of eviction. There may be strict rules of procedure, and stiff penalties (triple damages, plus attorneys' fees) for violations.  How much: Rent may be payable monthly, annually, or in advance, or as otherwise agreed. A typical arrangement for tenancy at will is \"first and last month's rent\" plus a security deposit. The \"last month's rent\" is rent that has yet to be earned by the landlord. To rent or lease in many apartment buildings, a renter (also referred to as a “lessee\") is often required to provide proof of renters insurance before signing the rental agreement. There is a special type of the homeowner’s insurance in the United States specifically for renters HO-4. This is commonly referred to as renter’s insurance or renter's coverage. Like condominium coverage, referred to as a HO-6 policy, a renter's insurance policy covers those aspects of the apartment and its contents not specifically covered in the blanket policy written for the complex. This policy can also cover liabilities arising from accidents and intentional injuries for guests as well as passers-by up to 150' of the domiciles. Renter’s policies provide \"named peril\" coverage, meaning the policy states specifically what you are insured against. In addition to the above, a car rental agreement may include various restrictions on the way a renter can use a car, and the condition in which it must be returned. For example, some rentals cannot be driven off-road, or out of the country, or towing a trailer, without specific permission. In New Zealand you may have to specifically endorse a promise that the car will not be driven onto Ninety-mile Beach (because of the hazardous tides). 113 CU IDOL SELF LEARNING MATERIAL (SLM)

There will certainly be a requirement to show a driver's license, and only those drivers appearing on the contract may be authorized to drive. It may include an option to purchase auto insurance (motor insurance, UK), if the renter does not already have a policy to cover rentals another important consideration for multiple drivers. Some agencies may even require a bond payable if the car is not returned in order, often held in the form of a credit-card authorization voided if the car is returned per agreement. A renter should be advised that he or she will be responsible for any parking or traffic violations incurred upon the vehicle during the rental period. There should also be advice on handling thefts, accidents, break- downs, and towing. Further terms may include added fees for late returns, drop-off at a different location, or failure to top up the petrol immediately before the return. Finally, there may be provisions for making a non-refundable deposit with a booking, terms for payment of the initial period (with discounts, vouchers, etc.), extended periods, and any damages or other fees that accrue prior to the return. How is Tax Exemption from HRA Calculated? The deduction available is the least of the following amounts:  Actual HRA received.  50% of [basic salary + DA] for those living in metro cities (40% for non-metros).  Actual rent paid less 10% of basic salary + DA. Can I Claim HRA and Deduction on Home Loan Interest as well? Yes, you may claim the HRA as it has no bearing towards your home loan interest deduction. Both can be claimed. Try out our free HRA calculator to determine your HRA exemption. This calculator shows you on what part of your HRA you must pay taxes i.e., how much of your HRA is taxable and how much is exempt from tax. When Do You Need Landlord’s PAN? If you have taken a house on rent and are making a payment more than Rs 1 LAKHS annually – remember to provide the landlord’s PAN. Else, you may lose out on the HRA exemption. Landlords without a PAN must be willing to give you a declaration refers circular no. 8/2013 dated 10 October 2013. Tenants paying rent to NRI landlords must remember to deduct TDS of 30% before making the payment towards rent. What if my Employer doesn’tprovide me With HRA? If pay rent for any residential accommodation occupied by you, but do not receive HRA from your employer, you can still claim the deduction under Section 80GG. Conditions that must be fulfilled to claim this deduction:  You are self-employed or salaried 114 CU IDOL SELF LEARNING MATERIAL (SLM)

 You have not received HRA at any time during the year for which you are claiming 80GG  You or your spouse or your minor child or HUF of which you are a member – do not own any residential accommodation at the place where you currently reside, perform duties of office, or employment or carry-on business or profession. S. Particulars Amount Amount No (in Rs) (in Rs.) 1 Actual HRA received 1,00,000 2 Rent paid (15000 p.m. * 12 months) minus (-) 10% of 1,80,000 1,47,600 {(250 00p.m.*12) + (2000p.m.*12)} i.e.,10% of Basic + DA 32,400 3 50% of {(25000p.m.*12) + (2000p.m.*12)} (50% is 1,62,000 considered as the accommodation is in Delhi) 4 Exempt HRA = lowest of 1,2, & 3 1,00,000 Table 6.2: Calculation of HRA In case you own any residential property at any place other than the place mentioned above, then you should not claim the benefit of that property as self-occupied. The other property would be deemed to be let out to claim the 80GG deduction. How to Claim Deduction under Section 80GG? The least of the will be considered as the deduction under this section:  Rs 5,000 per month.  25% of adjusted total income*.  Actual rent less 10% of adjusted total Income*. Adjusted Total Income means Total Income Less long-term capital gain, short-term capital gain under section 111A and Income under section 115A or 115D and deductions 80C to 80U (except deduction under section 80GG). 115 CU IDOL SELF LEARNING MATERIAL (SLM)

How to Claim HRA When Living With Parents? Let’s understand this with an example. Samiksha works in an MNC in Bangalore. Though her company provides her with HRA, she lives with her parents in their house and not in rented accommodation. How can she make use of this allowance? Samiksha can pay rent to her parents and claim the allowance provided. All she must do is enter into a rental agreement with her parents and transfer money to them every month. This way Samiksha can make a nice gesture to her parents while saving on taxes. Her parents will have to show the rent she paid on their income tax returns. However, they can save a lot as a family. 6.5 SUMMARY  The first head of Income Tax heads is income from salary whichThis clause essentially assimilates any remuneration, which is received by an individual in terms of services provided by him based on a contract of employment. This amount qualifies to be considered for income tax only if there is an employer-employee relationship between the payer and the payee respectively. Salary also should include the basic wages or salary, advance salary, pension, commission, gratuity, perquisites as well as the annual bonus.  The second head of Income Tax heads is Income from house property, According to the Income Tax Act 1961, Sections 22 to 27 is dedicated to the provisions for the computation of the total standard income of a person from the house property or land that he or she owns. An interesting aspect is that the charge is derived out of the property or land and not on the amount of rent received. However, if the property is utilized for letting out the normal course of business, then the income from the rent will be considered.  The third head of Income Tax heads isIncome from Profits of Business in which the computation of the total income will be attributed from the income earned from the profits of business or profession. The difference between the expenses and revenue earned will be chargeable.  Capital Gains are the profits or gains earned by an assessee by selling or transferring a capital asset, which was held as an investment. Any property, which is held by an assessee for business or profession, is termed as capital gains.  Any other form of income, which is not categorized in the above-mentioned clauses, can be sorted in this category. Interest income from bank deposits, lottery awards, card games, gambling or other sports awards are included in this category. These incomes are attributed in Section 56(2) of the Income Tax Act and are chargeable for income tax. 116 CU IDOL SELF LEARNING MATERIAL (SLM)

 For any help on ITR Filing feel free to consult the tax experts at LegalRaasta. You can file ITR yourself via our ITR software or get CA’s help on filing income tax return. You can also use the option of Business Return, Bulk Return or Revised Return Filing. 6.6 KEYWORDS  Property: Property is any item that a person or a business has legal title over. Property can be tangible items, such as houses, cars, or appliances, or it can refer to intangible items that carry the promise of future worth, such as stock and bond certificates.  Legal Entity: An entity (as a corporation or labor union) having under the law rights and responsibilities and especially the capacity to sue and be sued.  Property Regime: In a common property regime, individuals share a resource. They are called commoners. Commoners can use the resource they have, but they can also decide collectively.  Capital Gains: A capital gain is the increase in a capital asset's value and is realized when the asset is sold.  Expenditure - Expenditure on improvement rather than repair. Where expenditure is more closely connected with the business income-earning structure than its income earning capacity, it is capital expenditure. 6.7 LEARNING ACTIVITY 1. Create a survey on Incomefrom HouseProperty. ___________________________________________________________________________ ___________________________________________________________________________ 2. Create a session on HRA. ___________________________________________________________________________ ___________________________________________________________________________ 6.8UNIT END QUESTIONS A. Descriptive Questions 117 Short Questions 1. What is HRA? 2. Define the term House property? CU IDOL SELF LEARNING MATERIAL (SLM)

3. Describe the term Property? 4. What is the term House? 5. Write the main aim of Annual value? Long Questions 1. Explain the concept of IncomefromHouseProperty. 2. Illustrate the concept of Annual value. 3. Discuss the Cases where income from house property is taxable under other heads of income. 4. Illustrate the Cases where Income from House Property is not taxable at other heads of income. 5. Explain the concept of HRA. B. Multiple Choice Questions 1. What is the basis of charge under the head income from house property under income tax act, 1961? a. Rent Received b. Gross Annual Value c. Annual Value d. None of these 2. Under which section does Annual value is defined u/s? a. 23(1) b. 22(1) c. 21(1) d. None of these 3. What is the Income from House Property is taxable on individual even if property is not registered in his name? a. When the property has been transferred to spouse for inadequate consideration b. Where the individual holds on importable estate c. Where the property is transferred to a minor child for inadequate consideration d. All of these 118 CU IDOL SELF LEARNING MATERIAL (SLM)

4. Under which taxable head does rental income of the statement fall - Mr. A owns a house property. He lent it to Mr. at 20,000 p.m. Mr. sublet it to Mr. C on monthly rent of ` 30,000 p.m.? a. Income from Other Sources b. Income from House Property c. Income from Salary d. None of these 5. What of the following rule for claiming the deduction for unrealised rent, the assessee must satisfy? a. Rule 4A b. Rule 4 c. Section 4 A d. None of these Answers 1-c, 2-a, 3-d, 4-b, 5-b 6.9 REFERENCES References book  Sacks, David (2004). Letter perfect: the marvellous history of our alphabet from A to Z. Random House Digital.  Grima, Noel (July 24, 2017). \"The Book That Came Back from Death.\" Independent.com.mt.  Iyyer, Chaitanya (2009). Land Management: Challenges and Strategies (First Ed.). Global India Publications Pvt. Ltd. Textbook references  \"Manor House\". Middle-ages.org.uk. May 16, 2007. Archived from the original on September 6, 2012. Retrieved January 4, 2012.  Evans, Robin “Translations from Drawing to Building: Figures, Doors and Passages” London: Architectural Associations Publications 2005  Summer son, John “The Book Of Architecture of John Thorpe in Sit John Sona’s museum: 40th Volume of the Walpole Society” England. Website 119 CU IDOL SELF LEARNING MATERIAL (SLM)

 https://en.wikipedia.org/wiki/House#References  https://r.search.yahoo.com/_ylt=Awr9IlAzrg9hZuMAKl5XNyoA;_ylu=Y29sbwNncT EEcG9zAzIEdnRpZANEMTA0NV8xBHNlYwNzcg-- /RV=2/RE=1628446388/RO=10/RU=https%3a%2f%2fen.wikipedia.org%2fwiki%2f Property/RK=2/RS=oO3LtcQYttWVEci8NgccOrhwTwU-  https://r.search.yahoo.com/_ylt=Awr9IlAzrg9hZuMALF5XNyoA;_ylu=Y29sbwNnc TEEcG9zAzMEdnRpZANEMTA0NV8xBHNlYwNzcg-- /RV=2/RE=1628446388/RO=10/RU=https%3a%2f%2fen.wikipedia.org%2fwiki%2f List_of_house_types/RK=2/RS=S3Hw1CnemZDrc4BjtGoMLox_gG4- 120 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 7 – INCOME HEADS PART III STRUCTURE 7.0 Learning Objectives 7.1 Introduction 7.2 Profits and Gains of Business and Profession 7.2.1 Business 7.2.2 Profession 7.2.3 Basis of Charge 7.2.4 General Deduction (Residuary section) 7.3 Its Calculation 7.4 Summary 7.5 Keywords 7.6 Learning Activity 7.7 Unit End Questions 7.8 References 7.0 LEARNING OBJECTIVES After studying this unit, you will be able to:  Describe the concept of Profits and Gains of Business and profession.  Understand about Business in Income.  Illustrate the concept of Profession. 7.1 INTRODUCTION Business is the activity of making one's living or making money by producing or buying and selling products. Simply put, it is \"any activity or enterprise entered into for profit.\" Having a business name does not separate the business entity from the owner, which means that the owner of the business is responsible and liable for debts incurred by the business. If the business acquires debts, the creditors can go after the owner's personal possessions. A business structure does not allow for corporate tax rates. The proprietor is personally taxed on all income from the business. 121 CU IDOL SELF LEARNING MATERIAL (SLM)

The term is also often used colloquially (but not by lawyers or by public officials) to refer to a company. A company, on the other hand, is a separate legal entity and provides for limited liability, as well as corporate tax rates. A company structure is more complicated and expensive to set up but offers more protection and benefits for the owner. A very detailed and well-established body of rules that evolved over a very long period applies to commercial transactions. The need to regulate trade and commerce and resolve business disputes helped shape the creation of law and courts, The Code of Hammurabi dates to about 1772 BC for example and contains provisions that relate, among other matters, to shipping costs and dealings between merchants and brokers. The word \"corporation\" derives from the Latin corpus, meaning body, and the Maurya Empire in Iron-Age India accorded legal rights to business entities. In many countries, it is difficult to compile all the laws that can affect a business into a single reference source. Laws can govern the treatment of labour and employee relations, worker protection and safety, discrimination based on age, gender, disability, race, and in some jurisdictions, sexual orientation, and the minimum wage, as well as unions, worker compensation, and working hours and leave. Some specialized businesses may also require licenses, either due to laws governing entry into certain trades, occupations, or professions, that require special education or to raise revenue for local governments. Professions that require special licenses include law, medicine, piloting aircraft, selling liquor, radio broadcasting, selling investment securities, selling used cars, and roofing. Local jurisdictions may also require special licenses and taxes just to operate a business. Some businesses are subject to ongoing special regulation, for example, public utilities, investment securities, banking, insurance, broadcasting, aviation, and health care providers. Environmental regulations are also very complex and can affect many businesses. When businesses need to raise money (called capital), they sometimes offer securities for sale. Capital may be raised through private means, by an initial public offering or IPO on a stock exchange, or in other ways. Major stock exchanges include the Shanghai Stock Exchange, Singapore Exchange, Hong Kong Stock Exchange, New York Stock Exchange, and NASDAQ (the USA), the London Stock Exchange, the Tokyo Stock Exchange (Japan), and Bombay Stock Exchange (India). Most countries with capital markets have at least one. Businesses that have gone public are subject to regulations concerning their internal governance, such as how executive officers' compensation is determined, and when and how information is disclosed to shareholders and to the public. In the United States, these regulations are primarily implemented and enforced by the United States Securities and 122 CU IDOL SELF LEARNING MATERIAL (SLM)

Exchange Commission (SEC). Other western nations have comparable regulatory bodies. The regulations are implemented and enforced by the China Securities Regulation Commission (CSRC) in China. In Singapore, the regulatory authority is the Monetary Authority of Singapore (MAS), and in Hong Kong, it is the Securities and Futures Commission (SFC). The proliferation and increasing complexity of the laws governing business have forced increasing specialization in corporate law. It is not unheard of for certain kinds of corporate transactions to require a team of five to ten attorneys due to sprawling regulation. Commercial law spans general corporate law, employment and labour law, health-care law, securities law, mergers and acquisitions, tax law, employee benefit plans, food and drug regulation, intellectual property law on copyrights, patents, trademarks, telecommunications law, and financing. Other types of capital sourcing include crowd sourcing on the Internet, venture capital, bank loans, and debentures. A profession is an occupation founded upon specialized educational training, the purpose of which is to supply disinterested objective counsel and service to others, for a direct and definite compensation, wholly apart from expectation of other business gain. Medieval and early modern tradition recognized only three professions: divinity, medicine, and law, which were called the learned professions. A profession is not a trade and not an industry. The term profession is a truncation of the term liberal profession, which is, in turn, an Anglicization of the French term profession liberal. Originally borrowed by English users in the 19th century, it has been re-borrowed by international users from the late 20th, though the (upper-middle) class overtones of the term do not seem to survive re-translation: \"liberal professions\" are, according to the European Union's Directive on Recognition of Professional Qualifications (2005/36/EC), \"those practised on the basis of relevant professional qualifications in a personal, responsible and professionally independent capacity by those providing intellectual and conceptual services in the interest of the client and the public\". Some professions change slightly in status and power, but their prestige generally remains stable over time, even if the profession begins to have more required study and formal education. Disciplines formalized more recently, such as architecture, now have equally long periods of study associated with them. Although professions may enjoy relatively high status and public prestige, not all professionals earn high salaries, and even within specific professions there exist significant differences in salary. In law, for example, a corporate defence lawyer working on an hourly basis may earn several times what a prosecutor or public defender earns. Originally, any regulation of the professions was self-regulation through bodies such as the College of Physicians or the Inns of Court. With the growing role of government, statutory bodies have increasingly taken on this role, their members being appointed either by the profession or by government. Proposals for the introduction or enhancement of statutory 123 CU IDOL SELF LEARNING MATERIAL (SLM)

regulation may be welcomed by a profession as protecting clients and enhancing its quality and reputation, or as restricting access to the profession and hence enabling higher fees to be charged. It may be resisted as limiting the members' freedom to innovate or to practice as in their professional judgement they consider best. An example was in 2008, when the British government proposed wide statutory regulation of psychologists. The inspiration for the change was several problems in the psychotherapy field, but there are various kinds of psychologist including many who have no clinical role and where the case for regulation was not so clear. Work psychology brought especial disagreement, with the British Psychological Society favouring statutory regulation of \"occupational psychologists\" and the Association of Business Psychologists resisting the statutory regulation of \"business psychologists\" descriptions of professional activity which it may not be easy to distinguish. The engineering profession is highly regulated in some countries (Canada and USA) with a strict licensing system for Professional Engineer that controls the practice but not in others (UK) where titles and qualifications are regulated Chartered Engineer, but practice is not regulated. Typically, individuals are required by law to be qualified by a local professional body before they are permitted to practice in that profession. However, in some countries, individuals may not be required by law to be qualified by such a professional body to practice, as is the case for accountancy in the United Kingdom (except for auditing and insolvency work which legally require qualification by a professional body). In such cases, qualification by the professional bodies is effectively still considered a prerequisite to practice as most employers and clients stipulate that the individual hold such qualifications before hiring their services. For example, to become a fully qualified teaching professional in Hong Kong working in a state or government-funded school, one needs to have successfully completed a Postgraduate Diploma in Education or a bachelor's degree in Education at an approved tertiary educational institution or university. This requirement is set out by the Educational Department Bureau of Hong Kong, which is the governmental department that governs the Hong Kong education sector. 7.2 PROFITSANDGAINSOFBUSINESSANDPROFESSION Business is an activity of purchase and sell of goods with the intention of making profit. Profession is an occupation requiring intellectual skill E.g.,Doctor, Lawyer etc. Vocation is an activity, which requires a special skill, which is used to earn incomeE.g., Painter, Singer etc. For income tax purpose there is no difference between business income, profession income and vocation income. Business includes any trade, commerce or manufacture or any adventure or concern in trade, commerce, or manufacture. 124 CU IDOL SELF LEARNING MATERIAL (SLM)

Thus, business is any activity carried out with the intention to earn profit, whether such an activity is continuous or temporary is immaterial. In determining whether a particular transaction is an adventure in trade or not, total impression and effect of all relevant facts and circumstances of the transaction must be seen. To bring a transaction within the term “business”, the transaction must be a “trade” or in the nature of “trade”. Hence everything depends upon the facts and circumstances of the case. E.g., A person making investment of surplus funds in shares or debentures cannot be deemed to be carrying on the business of trading in shares although occasionally he may be selling “some” shares or debentures and making gains thereon. 7.2.1 Business Business Income is the profit that is earned from the business. It is nothing but Total Revenue/Total turnover minus Total Expense. The profit from the business is the taxable income/business income. Total Revenue – Total expense = Profit/ Taxable Income from business Section 28 – Chargingsection As per Section 28 of the Income Tax Act, 1961:  Any profit from any business/profession comes under income from PGBP (Profit & Gains from business & profession)  Any perquisite/benefit arising from a business comes under income from PGBP (Profit & Gains from business & profession)  Interest/Salary/Remuneration/Commission/Bonus received by Partner of a firm comes under income from PGBP (Profit & Gains from business & profession)  Sums received under an agreement for forbearance, i.e., agreement for not doing something (eg: Non- Compete Agreement), comes under income from PGBP (Profit & Gains from business & profession)  Sums received under Keyman Insurance Policy comes under income from PGBP (Profit & Gains from business & profession) 7.2.2 Profession Profession means the activities for earning livelihood which require intellectual skill ormanual skill, e.g., the work of a lawyer, doctor, auditor, engineer and so on are profession. Profession includes vocation. Profits: Excess income over expenditure. Gains: Any incidental revenue from business. As the rules for the assessment of business, profession or vocation are the same, there is no 125 CU IDOL SELF LEARNING MATERIAL (SLM)

importance of making any distinction between them for income tax purposes. Figure 7.1 The profits and gains of any business or profession which was carried on by the assessee at any time during the previous year; 7.2.3 Basis of Charge Under Section 28 following are the income chargeable to tax under the head Profits or Gains from Business or profession  Profits and Gains of any business or profession that is carried on by the assessee at any time during the previous year.  Any compensation or other payment due to or received by an assessee for loss of agency due to termination or modification of terms.  Income derived by a trade, professional or a similar association for specific services performed for its members.  Any profit on sale of a license granted under Imports Order 1955 made under Imports & Exports Act of 1947.  Any cash assistance (by whatever name called) received or receivable against exports under any scheme of Government of India.  Any duty of customs or excise repaid or repayable as drawback to any person against exports under the Customs and Central Excise Duty’s Drawback Rules 1971.  Any profit on the transfer of the Duty entitlement pass book scheme under export import policy.  Any profit on the transfer of the Duty-free replenishment certificate under export import policy.  The value of any benefit or perquisite whether convertible into money or not arising from business or exercise of a profession e.g. A gift received by the lawyer from his client.  Any interest, salary, bonus, commission, or remuneration due to or received by partner of a firm from such firm. 126 CU IDOL SELF LEARNING MATERIAL (SLM)

 Sum received or receivable in cash or in kind under an agreement for not carrying out any activity in relation to any business or not sharing any know how, patent, copyright, trade mark, license franchise or any other business or commercial right of similar nature or information or technique likely to assist the manufacture or processing of goods or provision of services.  Any sum received including bonus under Key man Insurance Policy.  Any sum received in cash or kind, on account of any capital asset being demolished, destroyed, discarded, or transferred, if the whole of the expenditure on such capital asset has been allowed as a deduction under section 35AD.  Income from a speculative business. 7.2.4 General Deduction This letter responds to a letter dated 28 February 2002, requesting rulings concerning the federal income tax consequences of a proposed transaction. The information submitted for consideration is summarized below. Company is a domestic corporation engaged in Business On Date 3, the date of death of Decedent, Company had outstanding A shares of voting common stock, B shares of nonvoting common stock, C shares cumulative voting preferred stock (which became nonvoting at Decedent’s death), and D shares of nonvoting preferred stock. On Date 3: over half of the voting common stock was held by Decedent’s daughter; over half of both the voting and nonvoting preferred stock (m shares voting and n shares nonvoting) was held by a revocable trust (“Revocable Trust”). All the other stock in Company is held by, or for the benefit of, Decedent’s children and grandchildren, and/or persons married to the children. Decedent, a State B resident, died on Date 3 survived by Daughter, Son, and three grandchildren. On Decedent’s Form 706, United States Estate Tax Return, the executor of Decedent’s estate elected to deduct the value of Decedent’s qualified family-owned business interests under section 2057 of the Internal Revenue Code and claimed the maximum allowable $675,000 deduction. Decedent’s QFOBI consisted of the Company stock (m shares of voting preferred and n shares of nonvoting preferred) held by Decedent indirectly through Revocable Trust. By a letter dated Date 4, the Internal Revenue Service accepted Decedent’s estate tax return. Revocable Trust was established on Date 1 through an agreement between Decedent and Decedent and his wife. On Date 2, Decedent amended and restated Revocable Trust in its entirety, with Revocable Trust being established for the benefit of Decedent, Daughter, and other descendants of Decedent. Pursuant to Article VI, section D of Revocable Trust, the property passing under Articles III and IV bears the excess costs, including funeral and estate administration expenses, death taxes, pre-residuary gifts, and certain other charges. On Decedent’s death, Revocable Trust ceased to be revocable. Daughter and an independent trustee are the two trustees of this trust. On Date 2, Decedent executed a will. Article II of Decedent’s will provide that Decedent’s tangible personal property is to be distributed in accordance with any memoranda signed and dated by 127 CU IDOL SELF LEARNING MATERIAL (SLM)

Decedent which disposes of any of Decedent’s tangible personal property. Except as otherwise devised, Decedent gives and devises his tangible personal property, along with any insurance policies relating thereto, to Daughter, if she survives Decedent. Article III of Decedent’s will provide that Decedent’s residuary estate is to be distributed to the then serving trustees of the Revocable Trust. Article V, section B of Decedent’s will provides that any estate, legacy, succession, inheritance, transfer, excise and other similar taxes (including any generation-skipping transfer tax) imposed by reason of Decedent’s death, together with any interest and penalties thereon, referred to therein as “death taxes,” are to be paid as follows: All death taxes, other than any generation-skipping transfer tax imposed upon or with respect to property which passes under the will, or to or under the Revocable Trust is to be paid out of Decedent’s general estate as an administration expense, without proration or apportionment against any recipient thereof and without any statutory rights to recover any amounts so paid. All other death taxes are to be prorated and apportioned in the manner provided by law. Article V, section C of Decedent’s will provide that his funeral, medical, and administration expenses are to be paid out of his general estate. Article V, section D of the will provides that Decedent’s “residuary estate” is to consist of all of Decedent’s property wherever located, remaining after payment of all debts, funeral and administration expenses and death taxes as provided in this article, any pre-residuary gifts, and any other charges payable out of the principal of Decedent’s general estate. Article V, section E of the will provides that if the assets of Decedent’s general estate are insufficient or too illiquid to pay decedent’s funeral and administration expenses or any death taxes required by this article to be paid out of Decedent’s general estate as an administration expense, Decedent’s personal representative is to make a written request to the trustees of the Revocable Trust to distribute to Decedent’s personal representative, or pay directly from the principal of that trust, such amount as may be necessary to pay such expenses and death taxes. Article II of the Revocable Trust, as amended, provides for the administration of the trust upon Decedent’s death, with the trust then termed the Terminating Trust. Article II, section B of the Revocable Trust provides that if the Terminating Trust contains any stock of Company, then such stock is to be disposed of as follows: the trustees are to distribute the Company voting preferred stock as follows: if Son survives Decedent, then the voting preferred stock is to be held by trustees in a separate trust pursuant to Article III of the agreement; the trustees are to distribute the Company nonvoting preferred stock pursuant to Article IV of the agreement. Article II, section C provides that the balance of the Terminating Trust remaining after the distributions directed under the preceding sections of Article II, referred to in the agreement as Decedent’s “residuary estate,” is to be disposed of pursuant to Article V of the agreement. Article III of the Revocable Trust provides for the establishment of a separate trust for the benefit of Son, Son’s descendants, and Son’s wife. Upon the death of the last to die of Son and Son’s wife, the trustees are to distribute the principal of this trust, together with all accrued or collected but undistributed income, to Daughter, if she is then living. If Daughter is not then living, then the trust assets are to be distributed pursuant to a special power of 128 CU IDOL SELF LEARNING MATERIAL (SLM)

appointment exercised by Daughter. Article IV of the Revocable Trust provides for the establishment of a separate trust to be funded with a fractional share of the property allocated to Article IV, the numerator of which equals Decedent’s unused GST exemption, and the denominator of which equals the value of the property allocated to this article as finally determined for federal estate tax purposes. The trustees may pay or apply all or any part of the net income and principal thereof to or for the benefit of Daughter and Daughter’s descendants in such proportions as the trustees in their discretion consider advisable for any eligible beneficiary’s maintenance in health and reasonable comfort, education, or support in such eligible beneficiary’s accustomed manner of living. If Daughter survives Decedent, then upon Daughter’s death the trustees are to distribute the remaining trust assets pursuant to a special power of appointment exercised by Daughter. Article V of the Revocable Trust provides for the disposition of Decedent’s residuary estate. Section A of this article provides that the trustees are to pay Decedent’s debts, death taxes, and expenses as provided by Article VI. Section B of Article V provides for the distribution of the balance of Decedent’s residuary estate as follows: if Daughter or any of her descendants survive Decedent, an equal share is to be disposed of pursuant to Article IV; and one equal share is to be distributed to Son, if Son survives Decedent, or if he does not survive Decedent, to Son’s descendants who survive Decedent, per stripes. Article VI, section A of Revocable Trust provides that upon Decedent’s death, the trustees are to pay to or on behalf of Decedent’s executor out of the principal of the residuary estate, such amounts as the personal representative requests in writing for Decedent’s funeral expenses, the expenses of administering Decedent’s estate, and any estate, legacy, succession, inheritance, transfer, excise (including any excise tax imposed under section 4980A) and other similar imposed by reason of Decedent’s death, together with any interest and penalties thereon, referred to in this article as “death taxes,” that are required by Decedent’s will to be paid out of Decedent’s general estate as an administration expense. 7.3 ITSCALCULATION Section 43 B mentions some cases where deduction will be allowed only when amount is actually paid by the assessee before due date of filing return. In all these cases deduction of the expense is allowed on “paid” basis. However, when expenditure is disallowed in one year, it will be allowed as a deduction in the previous year in which such expenses are actually paid. 129 CU IDOL SELF LEARNING MATERIAL (SLM)

Figure 7.2: Expenses not Deductible under Section 40(a)  Any sum payable by way of tax, cess, duty, or fee under any law and by whatever name called.  Any sum payable by employer by way of contribution to provident fund or superannuation fund or any other employee benefit fund.  Any sum payable as bonus, commission to employees for services rendered.  Any sum payable as interest on loan borrowed from public financial institution or state financial institution.  Any sum payable as interest on loan taken from scheduled bank including co- operative societies.  Any sum payable by employer in lieu of leave salary to employee 130 CU IDOL SELF LEARNING MATERIAL (SLM)

Figure 7.3: Maintenance of books of accounts by person carrying on business Advantages and Disadvantages of High Paying Jobs Irrespective of education and family background, it’s a common human nature to dream about more and more money. If you are well educated and skilled, the easiest way to fulfil your dream is to get high paying jobs. A high paid job satisfies one’s basic needs and at the same time provides the key to spend the surplus in fulfilling one’s dreams like buying homes, cars, and another luxury lifestyle. It’s true that money counts, but while choosing a career one should be very cautious in deciding the salary advantages and disadvantages of high paying jobs in the long run. 131 CU IDOL SELF LEARNING MATERIAL (SLM)

High Paying Job vs. Happiness In other words, this simply means money vs. happiness. This topic is a debatable one and has no conclusion to this comparison which satisfies all. Everyone needs money as well as happiness in their life. Both are equally important and quite relatable too. As every individual is different from others, it is obvious that their preference over money and happiness might also differ. Let us take the example of two groups, Generations Xer’s, and millennials. Generations Xer’s have always focused on money as it provided them with a better future and security. Whereas on the other hand millennials are the type of people who focus more on happiness and job satisfaction. Here we cannot judge either of the group as right or wrong and conclude any factor as more important because the secret of happiness for every person is different. So finally, the topic of money vs. happiness is a complicated one as money alone cannot provide you happiness and we cannot leave money, as without money life becomes miserable. So, the best way is to maintain a balance between both and enjoy your life. Salary The most attractive word in professional life is “Salary”. Moreover, when this salary is high it gives a great motivation to the one who is drawing it after a laborious work and hard study. A high paying job gives the mental satisfaction of the full utilization of one’s studies and the cost engaged behind the study from schooling till college. The good mind reflects a good human being. Respect comes with money & position When one draws a high salary, the job is ought to be a very respectable one, a doctor is always respected for his service towards the community where an engineer who serves the community with his work is also respected from the heart. The high position they hold in the society gives them the power & prestige to serve the community unbiased. And hard-earned money brings respect to friends, relatives & family as well. Security in Job The jobs are such that their demand curve is never downward. A doctor’s demand is ever- rising, wherein a well-experienced engineer is a treasure to a company. Again, a company would always prefer to retain a good management employee who is dedicated towards his work and is worth a high pay. A high paid job for a suitable candidate can never bring a threat towards job stability. Satisfied mind brings happiness 132 CU IDOL SELF LEARNING MATERIAL (SLM)

When one’s hard work and laborious study pays in terms of high pay, he/she is satisfied to the full. He/ She utilize the money to the fulfilment of his/her dreams and responsibilities, which in turn makes the one happy and contended. The mind states in the purest form and the person becomes happy from within. Their mind- body reflects a happy being that stands as an example in front of many in the same path. Money flow in the economy increases With a high paid job, the money flow in the economy increases in a variety of ways. Firstly, the company hiring a person on a high pay will always try to utilize the intellect in a possible way. One who is highly qualified can engage his ideas in getting business and provide service in a wide field and from abroad as well. This would lead to a rise in GDP. Gross Domestic production is the result of the summation of the total production that took place in the economy. GDP denotes that Income= expenditure = production. GDP is a very crucial indicator of an economy’s progress. A rise in GDP denotes a rise in the standard of living of its citizens. Expenditure towards healthcare & education increases A society prospers when it’s free from diseases & ailments and is educated up to the mark. When one canfulfil his/her basic needs like shelter, food & clothing easily, the next basic need comes for proper healthcare & education. When one gives the family proper health protection and education, then it directly counts to the wellbeing of society. Healthy work environment When one enters high paying jobs, it’s obvious that the job will be respectable and of high status. This gives an opportunity to the worker to work in a healthy working environment which in turn nurtures his knowledge and skill to the fullest. It becomes easier for the employee to give his fullest output which in turn gives benefit to the company. Disadvantages of High Paying Jobs High salary brings with it the achievement of better and best lifestyle with high end and luxurious items for a living. In such high paying jobs as there is an opportunity to buy a high lifestyle, there always remains a risk of falling jobless resulting in the diminishing of the standard of living. Late starting of Career 133 CU IDOL SELF LEARNING MATERIAL (SLM)

To get a high paid job one must qualify oneself to that mark by completing several courses, cracking various competitive examinations. This process of getting a well-paid job, in turn, increases the study period thus resulting in the late start of the career. When a person starts his/her career late, the time span of the career eventually gets shortened which in turn lowers the opportunity to earn over a long period of time. Increase in Working Hours A high pay along with it brings demand from higher working hours. Whenever a company invests good money behind one, then it becomes obvious that they would demand and squeeze out the maximum from him/her. They would like to extract more and more from the one they are paying so high. They would give assignments beyond their working hours to finish. Sometimes such high paid jobs do not bear any working hours mentioned as such, which easily gives the opportunity to the company to engage their employees to work beyond time or extra time mostly. Increase in work pressure A high paid job is directly proportional to higher work pressure. When your company pays you well, you are bound to abide by what they say and direct you. It is very likely that such jobs will bring untimely assignments, with tight deadlines and merciless work pressure. Most of such jobs buy your will and you are bound to say yes to such work pressure as you might fear the consequences of attrition from such pay. High pay buys rest Most highly paid jobs come with packages of high-end Laptops with unlimited internet facilities, cell phones and many more, but these are ways of the company to buy your personal time as well. The employer easily gives you assignments to finish within a time span though you have left the office. He bounds you to work from home though you are beyond your working hours. One can hardly find rest though being at home comfort. His/her brain works being away from office under tremendous pressure. Family life ruins A high paid job buys your family life as well. A day cannot be more than 24 hours. When you are running after money and more money it’s obvious that you will have enough time neither for yourself nor for your family. And when you are employed by somebody you are bound to follow the instructions and complete the task within a stipulated time span which obstructs you to spend time with your family. 134 CU IDOL SELF LEARNING MATERIAL (SLM)

It would happen that you could not turn up to commitments to your family just because your boss’s assignment needs to be met. Once engaged in such high paid assignments one would have to forget vacations, occasions and all which in turn will turn a human into a machine thus cutting all bonds of relations, destroying family peace and harmony. Health ruins As a high pay promises you a dearth of time, running behind work deadlines, it ruins your health as well. You would not get time at all. Daily stress, tension and restless hours, sleepless nights will result in degradation of health without doubts. Education cost To get high paying jobs the kind of education needs to be gained is very costly and not everybody can afford it. To become a doctor or an engineer is very costly, and it always needs to be kept in mind that the job is worth the study. Education loan to pursue such hefty courses are available, but not many meritorious students can be eligible to apply for the same. There occurs a compromise between merit and money also. Fear of attrition Associated with a high paid job is the risk of getting jobless, When one climbs too high, the risk of falling and breaking bones increases proportionately. Same is the condition with a highly paid job. Getting jobless and the fear of it is higher here than a low paid job. For example, if we take the case of commercial pilots in the USA, they face continuous uncertainty in their career because of the condition of the airline industry and constant competition from low-cost airlines. Fear of fall in lifestyle High salary brings with it the achievement of better and best lifestyle with high end and luxurious items for a living. In such high paying jobs as there is an opportunity to buy a high lifestyle, there always remains a risk of falling jobless resulting in the diminishing of the standard of living. Stressful Some of the highly paid jobs are associated with maximum stress and tension. Some of them are the jobs of air traffic controllers and surgeons whose decisions always matter for lives. In their work there remain zero margins for error. Stress-related to job result to be more taxing than anything else resulting in physical & mental illness. Fear of not performing 135 CU IDOL SELF LEARNING MATERIAL (SLM)

Fear of not performing to the mark always haunts the mind of a person engaged in a high paying job. There prevails a high competition level in such offices. So, if anyone fails to perform well to the boss’s expectations, he/she might be demoted or be losing his/her job. Compromise towards dream job Sometimes people go for a wrong job just in the lust of a higher salary. We in this world run after money, sometimes forgetting our passion and will. What we want to do in life most of the time gets suppressed for the lust of money and we accept those high paid job offers which we were never ready to or very less interested to do. Limiting the Growth opportunity In a highly paid job, there remains very less opportunity to grow. The career becomes stagnant at one point. If one gets every satisfaction in a go, he/she finishes his/her erg to eat more, the same happens when one gets every requirement from a single job, his erg to grow stops and where growth stops, we know life ends. Risk-oriented jobs Most of the highly paid jobs associate high degrees of risk with it. For example, an air traffic controller must be highly alert in his job else will be responsible for lives, on the other hand, a small mistake in a doctor’s diagnosis or surgery may cause a loss of life. Choice for options gets restricted An alluring salary and perks are always responsible for blocking career options and choices. Choices become less and options sink with high paying jobs. One feels insecure in leaving a job which is highly paid and pursuing a career in a trait which one dreamt of. Makes Workaholic High paid job pertaining to higher work hours and pressure makes a man workaholic. Always work and no play make Jack a dull boy. No time for oneself, any recreation or recess will bring boredom in life resulting to aging before time. There would be fatigue in work thus resulting in less efficiency in assignments. 7.4 SUMMARY  It’s true that money does matter the most in today’s world, but still when it comes to choosing a career for a long run a critical analysis of oneself is highly recommended to judge if the job is going to add stars for the future development of self.  It’s only you who must decide before accepting a high paying job offer, whether to think of future and long-run benefits or to live in present with a job that pays you well with stress, tension, long working hours, no or fewer weekends, no family life, 136 CU IDOL SELF LEARNING MATERIAL (SLM)

degrading health with increasing pressure. However, a person who wants to balance personal life with a sober income prefers not to accept a high pay package.  Both being an employee and being an entrepreneur has their own advantages and disadvantages. Entrepreneurs are often portrayed as happy and free, risk takers that have the benefits of controlling their own time and income.  They often have uncapped potential earning and can jump from industry to industry using and developing business skills that ultimately add to their success and experience. In the real light of day though, many entrepreneurs fail.  They don’t have the guaranteed income and work available that a contracted employee can enjoy. Unfortunately, they often don’t have a team of colleagues to rely and depend on, a paycheck to cash at the end of every month, a company car and medical insurance, and a chance of career progression within the same company in exchange for years of service.  From the complexities of registering your company through to arduous tax returns, failures, fallouts, and business pitfalls. The life of an entrepreneur is not as star- studded as people would believe when they see the word appear in the press.  In a profession, autonomy and self-regulation still hold true or are even desirable in the modem corporate and bureaucratic world. A profession's right to exist, along with the power and privileges its members enjoy, rests upon the professions upholding of public values through the development, transmission, and application of a body of knowledge. The creation of this body of knowledge and its concentration in the hands of a few creates a knowledge gap between the professional and client. That gap gives the profession power. Such power is reinforced by differential access to other resources -technological, physical, and organizational. For example, it is not just medical knowledge but access to medical technology that gives the medical profession its capacity to heal. It is the institutional links to courts that make barristers so effective 7.5 KEYWORDS  Employee Profit Sharing - System under which the employees of an enterprise are entitled by employment contract or by law to a share in the profits made by the enterprise.  Employee Stock Option - An opportunity for employees to purchase stock in the company they work for, often at a discount from fair market value. Generally, it is provided as an incentive to stay with the employer until the options vest.  Employment Income - Income source of individuals, covering income derived from labour or other current or former dependent personal services such as salaries, wages, 137 CU IDOL SELF LEARNING MATERIAL (SLM)

bonuses, allowances, and compensation for loss of office or employment, pensions and, in some countries, certain social security benefits.  Entertainer - Income of a professional entertainer e.g., a musician, actor or other artiste, or sportsman is, in many cases, treated differently from income of persons carrying on other independent profession.  Entity - In general for tax purposes, an organization, person, or party that possesses separate existence. Options include corporations, partnerships, estates, and trusts. 7.6 LEARNING ACTIVITY 1. Create a session on Business. ___________________________________________________________________________ ___________________________________________________________________________ 2. Create a survey on ProfitsandGainsofBusinessandprofession. ___________________________________________________________________________ ___________________________________________________________________________ 7.7UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. Define Business? 2. Describe Profession? 3. What do you mean by Profit? 4. What do you mean by Gains? 5. Write the main aim Deduction? Long Questions 1. Illustrate the ProfitsandGainsofBusinessandprofession. 2. Discussabout Business. 3. Explain the concept of Profession. 4. Illustrate the Basis of Charge. 5. Describe the concept of General Deduction. B. Multiple Choice Questions 138 CU IDOL SELF LEARNING MATERIAL (SLM)

1. Where can the tax have paid by the tenant captured? a. Added to rent received b. No adjustment c. Added to Annual value d. All of these 2. What percentage is allowed as deduction from the annual value? a. 20% b. 25% c. 30% d. None of these 3. What is the purposes deductible from annual value for Interest on loan taken? a. Construction b. Purchase c. Repair d. All of these 4. Which of the following is not deductible from annual value? a. Interest on loan taken for repairs b. Interest on loan taken for reconstruction c. Interest on unpaid interest d. 3% 5. What is the annual value of self-occupied house is? a. Nil b. Equal to Municipal Value c. Equal to Fair rent d. None of these Answers 1-b, 2-c, 3-d, 4-c, 5-a 139 CU IDOL SELF LEARNING MATERIAL (SLM)

7.8 REFERENCES References book  Dent, Mike; Bourgeault, Ivy Lynn; Denis, Jean-Louis; Kuhlmann, Ellen (1 July 2016). The Rutledge Companion to the Professions and Professionalism. Rutledge.  Bloom, Samuel William; Bloom, Samuel W. (2002). The Word as Scalpel: A History of Medical Sociology. Oxford University Press.  Abbott, Andrew (7 February 2014). The System of Professions: An Essay on the Division of Expert Labour. University of Chicago Press. Textbook references  Redmond, Edward. \"Washington as Public Land Surveyor\". Library of Congress. Retrieved 17 September 2020.  Boehm, Jay (March 1998). \"Surveying\". Thomas Jefferson's Monticello. Retrieved 17 September 2020.  \"Lincoln's New Salem 1830-1837\". National Park Service. 10 April 2015. Website  http://www.letslearnaccounting.com/taxation-of-income-from-business-or-profession/  https://content.wisestep.com/advantages-disadvantages-high-paying-jobs/  https://r.search.yahoo.com/_ylt=Awr9Il44uQ9h8OMA5AhXNyoA;_ylu=Y29sbwNnc TEEcG9zAzQEdnRpZAMEc2VjA3Ny/RV=2/RE=1628449208/RO=10/RU=http%3a %2f%2fwww.letslearnaccounting.com%2ftaxation-of-income-from-business-or- profession%2f/RK=2/RS=JFw6zfHCGiiGHyOpRzb2Iw2Ygk8- 140 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 8 – RETIREMENT BENEFITS STRUCTURE 8.0 Learning Objectives 8.1 Introduction 8.2 Gratuity 8.2.1 What is Gratuity? 8.2.2 Gratuity Eligibility Criteria 8.2.3 Gratuity Calculation Formula 8.2.4 How to Calculate Gratuity 8.2.5 Calculation of gratuity for the employees who are not covered under the Gratuity Act 8.2.6 Calculation of gratuity in case of death of an employee 8.2.7 Latest advancements regarding Gratuity 8.2.8 Few Significant Points about Gratuity 8.2.9 Tax on Gratuity 8.2.10 Tax Exemptions on Gratuity 8.2.11 Gratuity Rules 8.3 Provident Fund 8.4 Summary 8.5 Keywords 8.6 Learning Activity 8.7 Unit End Questions 8.8 References 8.0 LEARNING OBJECTIVES After studying this unit, you will be able to:  Describe the concept of Gratuity.  Explain the concept of Calculation of gratuity for the employees who are not covered under the Gratuity Act.  Illustrate the Calculation of gratuity in case of death of an employee. 141 CU IDOL SELF LEARNING MATERIAL (SLM)

8.1 INTRODUCTION A gratuity is a sum of money customarily given by a client or customer to certain service sector workers for the service they have performed, in addition to the basic price of the service. It may or may not be customary to tip servers in bars and restaurants, taxi drivers, hair stylists and so on, but this depends on the country or location. Giving a tip is typically irreversible, differentiating it from the reward mechanism of a placed order, which can be refunded. Tips and their amount are a matter of social custom and etiquette, and the custom varies between countries and between settings. In some places tipping is not expected and may be discouraged or considered insulting, while in other places tipping is expected from customers. The customary amount of a tip can be a specific range of monetary amounts, or a certain percentage of the bill based on the perceived quality of the service given. It is illegal to offer tips to some groups of workers, such as U.S. government workers and more widely police officers; the tips may be regarded as bribery. A fixed percentage service charge is sometimes added to bills in restaurants and similar establishments. Tipping may not be expected when a fee is explicitly charged for the service. From a theoretical economic point of view, gratuities may solve the principal–agent problem and many managers believe that tips provide incentive for greater worker effort. However, studies of the practice in America suggest that tipping is often discriminatory or arbitrary: workers receive different levels of gratuity based on factors such as age, sex, race, hair colour and even breast size, and the size of the gratuity is found to be only very weakly related to the quality of service. According to the Oxford English Dictionary, the word \"tip\" originated as a slang term and its etymology is unclear. According to the Online Etymology Dictionary, the meaning \"give a small present of money\" began around 1600, and the meaning \"give a gratuity to\" is first attested in 1706. The noun in this sense is from 1755. The term in the sense of \"to give a gratuity\" first appeared in the 18th century. It derived from an earlier sense of tip, meaning \"to give; to hand, pass\", which originated in the thieves' cant in the 17th century. This sense may have derived from the 16th-century \"tip\" meaning \"to strike or hit smartly but lightly\" but this derivation is \"very uncertain”. The word \"tip\" was first used as a verb in 1707 in George Farquhar's play The Beaux' Stratagem. Farquhar used the term after it had been \"used in criminal circles as a word meant to imply the unnecessary and gratuitous gifting of something somewhat taboo, like a joke, or a sure bet, or illicit money exchanges.\" The practice of tipping began in Tudor England. \"By the 17th century, it was expected that overnight guests to private homes would provide sums of money, known as vails, to the host's servants. Soon afterwards, customers began tipping in London coffeehouses and other commercial establishments\". 142 CU IDOL SELF LEARNING MATERIAL (SLM)

The etymology for the synonym for tipping, \"gratuity\", dates back either to the 1520s, from \"graciousness\", from the French gratuité or directly from Medieval Latin gratuitas, \"free gift\", probably from earlier Latin gratuitus, \"free, freely given\". The meaning \"money given for favour or services\" is first attested in the 1530s. In some languages, the term translates to \"drink money\" or similar: for example, pourboire in French, Trinkgeld in German, drikkepenge in Danish, and napiwek in Polish. This comes from a custom of inviting a servant to drink a glass in honour of the guest, and paying for it, for the guests to show generosity among each other. The term bibalia in Latin was recorded in 1372. A 2009 academic paper by Steven Holland calls tipping \"an effective mechanism for risk sharing and welfare improvement\" which reduces the risk faced by a service customer, because the customer can decide whether to tip. Tipping is sometimes given as an example of the principal-agent problem in economics. One example is a restaurant owner who engages servers to act as agents on his behalf. In some cases, \"compensation agreements increase worker effort. If compensation is tied to the firm's success\" and one example of such a compensation agreement is waiters and waitresses who are paid tips. Studies show however that, in the real world, the size of the tip is only weakly correlated with the quality of the service and other effects dominate. Tipping is not seen as obligatory. In the case of waiting staff, and in the context of a debate about a minimum wage, some people disapprove of tipping and say that it should not substitute for employers paying a good basic wage. But most people in Germany consider tipping to be good manners as well to express gratitude for good service. It is illegal, and rare, to charge a service fee without the customer's consent. But a tip of about 5% to 10%, depending on the type of service, is customary. For example, Germans usually tip their waiters. As a rule of thumb, the more personal the service, the more common it is to tip. Payments by card can include the tip too, but the tip is usually paid in cash when the card is handed over. At times, rather than tipping individually, a tipping box is set up. Rounding up the bill in Germany is commonplace, sometimes with the comment stims so (\"keep the change\"), rather than asking for all the change and leaving the tip afterwards. Or the customer says how much he will pay in total, including the tip: thus, if the basic price is €10.50, the customer might, rather generously but not unusually, say wolf (\"twelve\"), pay with a €20 note and get €8 in change. When paying a small amount, it is common to round up to the nearest euro. Sometimes a sign reading Aufrundenbitte (\"round up please\") is found in places where tipping is not common (like supermarkets, or clothing retailers). This requests that the bill be rounded up to the nearest €0.10. This is not to tip the staff, but a charity donation (fighting child poverty), and completely voluntary. 143 CU IDOL SELF LEARNING MATERIAL (SLM)

he Hungarian word for tip is borravaló or colloquially baksis Tipping is widespread in Hungary; the degree of expectation and the expected amount varies with price, type, and quality of service, and influenced by the satisfaction of the customer. As in Germany, rounding up the price to provide a tip is commonplace. The typical value of a tip is 10 percent in Hungary. Depending on the situation, tipping might be unusual, optional, or expected. Almost all bills include a service charge; similarly, some employers calculate wages on the basis that the employee would also receive tips, while others prohibit accepting them. In some cases, a tip is only given if the customer is satisfied; in others it is customary to give a certain percentage regardless of the quality of the service; and there are situations when it is hard to tell the difference from a bribe. Widespread tipping based on loosely defined customs and an almost imperceptible transition into bribery is considered a main factor contributing to corruption. A particular example of a gratuity is hálapénz or, which is the very much expected almost obligatory even though illegal tipping of state-employed physicians. The amount of the tip and method of calculating it will vary with the venue and can vary from 1–2 RON to 10% of the bill. The tips do not appear on bills and are not taxed. If paying by card, the tip is left in cash alongside the bill. While tipping is not the norm, servers, taxi drivers, hairdressers, hotel maids, parking valets, tour guides, spa therapists et al. are used to receiving tips regularly, and are likely to consider it an expression of appreciation for the quality of the service. If offering a tip, 5–10% of the bill is customary or small amounts of 5, 10 or 20 RON for services which are not directly billed. For other types of services, it depends on circumstances; it will not usually be refused but will be considered a sign of appreciation. For instance, counter clerks in drugstores or supermarkets are not tipped, but their counterparts in clothing stores can be. 8.2 GRATUITY Gratuity is a monetary benefit given by the employer to his employee at the time of retirement. It is a defined benefit plan where no contributions are made by the employee. Gratuity is a benefit which is payable under the Payment of Gratuity Act 1972. Gratuity is a sum of money paid by an employer to an employee for services rendered in the company. However, gratuity is paid only to employees who complete 5 or more years with the company. 8.2.1 What is Gratuity Gratuity is a financial component offered by an employer to an employee in recognition of his/her service rendered to an organisation. It is typically a portion of the salary an employee receives and can be viewed as a benefit plan designed to aid an individual in his/her retirement. 144 CU IDOL SELF LEARNING MATERIAL (SLM)

Gratuity is paid by an employer when an employee leaves the job after serving the same organisation for a minimum period of 5 years. One can consider it to be a financial “Thank you” to an employee for rendering continuous service to an employer. 8.2.2 Gratuity Eligibility Criteria Following are the few instances when you will be eligible to receive gratuity.  An employee should be eligible for superannuation  An employee retires  An employee resigns after working for 5 years with a single employer  An employee passes away or suffers disability due to illness or accident 8.2.3 Gratuity Calculation Formula Listed below are the components that go into calculation of gratuity amount. The amount is also dependent upon the number of years served in the company and the last drawn salary. Gratuity = N*B*15/26 N = number of years of service in a company B = last drawn basic salary plus DA 8.2.4 How to Calculate Gratuity For example, you have worked with a company for 20 years of and had Rs.25, 000 as his last drawn basic plus DA amount, then, Gratuity Amount for Amit = 20*25,000*15/26 = Rs.2, 88,461.54 However, an employer can choose to pay more gratuities to an employee. Also, for the number of months in the last year of employment, anything above 6 months is rounded off to the next number while anything below 6 months in the last year of employment is rounded off to the previous lower number. 8.2.5 Calculation of gratuity for the employees who are not covered under the Gratuity Act Even if the organisation is not part of the Act, they can pay gratuity. However, the calculation of gratuity is based on an individual’s half month’s salary for every year that has been completed. The salary includes commission (sales based), dearness allowance, and basic salary. The following formula is considered for the calculation of gratuity amount for employees who are not covered under the Gratuity Act: Gratuity Amount = (15 * Last drawn salary amount * period of service) / 30 145 CU IDOL SELF LEARNING MATERIAL (SLM)

For Example: For example, if you have at a company for 10 years and 8 months and your salary is Rs.50,000, the calculation of the gratuity amount is done as follows: Gratuity Amount: (15 * 50,000 * 11) / 30 = Rs.2.75 LAKHS. The period of service of an employee is taken as a whole year for the calculation. In case the number of months worked in the last year is less than 6 months, the previous number of completed years is considered. However, if the number of months completed in the last year of service is more than 6 months, the year is a full year for the purpose of calculation. Thus, the working tenure has been considered as 11 years. If the service period had been 10 years and 4 months, the number of years of service would have been considered as 10 years only. as per the rules recorded on the pensioner’s portal of the government, the amount of gratuity at the time of retirement is calculated as follows: Gratuity Amount is equal to one-fourth of the last-drawn basic salary of an employee for each completed six-month period. The retirement gratuity amount which is payable is 16 times of the basic salary. However, it is subject to a cap of Rs.20 LAKHS. 8.2.6 Calculation of gratuity in case of death of an employee In case of death of an employee, the gratuity benefits are calculated based on the tenure of service of the employee. The amount is, however, subject to a maximum of Rs.20 LAKHS. The following table shows the rates at which the gratuity will be payable in case of death of an employee: Tenure of service Amount payable towards gratuity Less than a year 2 * basis salary 1 year or more but 6 * basic salary less than 5 years 5 years or more but 12 * basic salary less than 11 years 11 years or more but 20 * basic salary less than 20 years 20 years or more Half of the basic salary for each completed six-monthly period. However, it is subject to a maximum of 33 times of the basic salary. 146 CU IDOL SELF LEARNING MATERIAL (SLM)

Table 8.1: Amount payable towards gratuity 8.2.7 Latest advancements regarding Gratuity One of the most important advancement regarding gratuity for private sector employees is the fact that the ceiling has been raised to Rs.20 LAKHS from Rs.10 LAKHS for tax-free gratuity. The same was done for central government employee’s right after the announcement and implementation of the 7th Central Pay Commission. Considering the recent pandemic and virus outbreak across the nation, the Union Government has also proposed several security measures for the workforce. In one of the recent press conferences held by the Finance Minister Nirmala Sitharaman has announced that the government plans to offer the payment of gratuity after the completion of one year of service. This will be applicable to the fixed-term employees of a firm. 8.2.8 Few Significant Points about Gratuity Following are some of the most prominent points about payment of gratuity by an employer to an employee.  An employee can receive a gratuity amount higher than Rs.10, 00,000 from his/her employer, the exemption for tax in this case will be calculated as per the points listed above under taxation.  In the recent Interim Budget of 2019, interim finance minister, Mr. Piyush Goyal announced that the existing tax-free gratuity limit will be increased to Rs.30 LAKHS  The employer has the right to reject payment of gratuity to an employee if he/she has been asked to leave his/her job owing to any misconduct.  In case of death of the employee, the nominee or heir of the employee is paid the gratuity amount. The taxation for this is calculated for the receiver under the head – income from other sources. 8.2.9 Tax on Gratuity The taxation process for gratuity depends upon the employee who is receiving the gratuity amount. Two standard cases arise for the calculation of tax on gratuity: Government Employee Receiving Gratuity Amount: In case any employee under the state government, central government or local authority receives gratuity amount than the amount is fully exempt from Income Tax. Any Other Salaried Individual Receiving Gratuity Amount from an Employer who is covered by Payment of Gratuity Act: In case of gratuity received by any employee whose employer is covered under the Gratuity Act, the following amount is exempt from tax. 147 CU IDOL SELF LEARNING MATERIAL (SLM)

15 days salary as per the last drawn salary of the individual Any Other Salaried Individual Receiving Gratuity Amount from an Employer who is not covered by Payment of Gratuity Act: In such a case the least of the following three amounts is exempt from tax. Rs.10, 00,000 Gratuity received by employee Half month's salary for every year of service that the employee has completed with the employer 8.2.10 Tax Exemptions on Gratuity Based on the policy changes made during the 2016 budget, here are what gratuity laws looks like: According to Article 10 (10) in the Income Tax Act, any gratuity received by government employees, apart from statutory corporations, is fully exempt of tax. According to Article 10 (10) ii of the Income Tax Act, death and retirement gratuity receivable by an employee covered under Gratuity Act 1972 is the least amount of the following that is exempt from tax:  (*15/26) X Last drawn salary** X completed year of service or part thereof more than 6 months.  Rs.10 LAKHS.  Gratuity amount that is received. 7 days in case an individual is an employee of a seasonal establishment. Salary amounts to the total salary received by an employee including Dearness Allowance and excluding any other benefits like bonus, HRA, commission, and any other such perquisites. According to Article 10 (10) iii of the Income Tax Act, exemptions for gratuity amount received by individuals who are not covered under Gratuity Act of 1974 are as follows:  Half month’s Average Salary* X Completed years of service  Rs. 10, 00,000 3. Gratuity received. *Average salary = Average Salary of last 10 months immediately preceding the month of retirement ** Salary = Basic Pay + Dearness Allowance + turnover based commission 8.2.11 Gratuity Rules According to the Payment of Gratuity Act of 1972, an employer holds the right to forfeit their gratuity payment, either wholly or partially despite the employee having completed 5 and 148 CU IDOL SELF LEARNING MATERIAL (SLM)

more years of service in a company. The only situation where this works is when the employee has been terminated due to disorderly conduct wherein, he/she tries to physically harm individuals during his/her employment. There are three steps involved regarding gratuity payment. These include:  Initiation: An individual or a person authorised must send in an application to an employer regarding the gratuity he/she is owed by a company.  Acknowledgement and calculation: As soon as the application is received, the company which owes gratuity will calculate the amount and provides a notice of the same to the individual and the controlling authority with the amount specified.  Disbursal: The employer, having sent the acknowledgement, has a time of 30 days to pay the gratuity amount to the individual. 8.3 PROVIDENTFUND Employees’ Provident Fund or EPF is a popular savings scheme that has been introduced by the EPFO under the supervision of the Government of India. The savings scheme is directed towards the salaried-class to facilitate their habit of saving money to build a substantial retirement corpus. The EPF scheme has catered to over 5 CRORE individuals and is directed by three different Acts, namely, the Employees’ Provident Fund Scheme Act, 1952, the Employees’ Deposit Linked Insurance Scheme Act, 1976 and the Employees’ Pension Scheme Act, 1995. The fund is built with monetary contribution extended by employees and their employer each month. Both parties extend 12% each of the employees’ monthly salary, as their share of contribution towards EPF. The fund thus built accrues a pre-fixed rate of interest that has been set by the Employees Provident Fund Organisation. The accrued interest on the EPF is tax-free and can be withdrawn without paying for the same. Employees avail a lump-sum amount on their retirement, which is inclusive of the accrued interest. Individuals can apply to avail various online services of EPF India by accessing the official portal. The EPF online portal is a user-friendly platform that ensures to keep the flow of services transparent, efficient, and hassle-free. What is the eligibility to become an EPF India Member? The Employee Provident Fund is open for employees of both the Public and Private Sectors, which means all employees can apply to become a member of EPF India. Additionally, any organisation that employs at least 20 individuals is deemed liable to extend benefits of EPF to its employees. When an employee becomes an active member of the 149 CU IDOL SELF LEARNING MATERIAL (SLM)

scheme, they are considered eligible to avail several benefits in the form of Employees Provident Fund benefits, insurance benefits and pension benefits. What are the benefits of EPF India Scheme? The employees’ provident fund scheme extends an array of benefits towards the EPF employee members. It inculcates a sense of financial stability and security in them. Here is a list of benefits that an EPF employee member can avail through the said scheme.  Capital appreciation – The PF online scheme offers a pre-fixed interest on the deposit held with the EPF India. Additionally, rewards extended at maturity further ensure growth in the employees’ funds and accelerate capital appreciation.  Corpus for Retirement – Around 8.33% of an employer’s contribution is directed towards the Employee Pension Scheme. In the long run, the sum deposited towards the employee provident fund helps to build a healthy retirement corpus. Such a corpus would extend a sense of financial security and independence to them after retirement.  Emergency Corpus – Uncertainties are a part of life. Therefore, being financially prepared to face such unwarranted situations is the best an individual can do deal with exigencies. An EPF fund acts as an emergency corpus when an individual requires emergency funds.  Tax-saving – Under Section 80C of the Indian Income Tax Act, en employee’s contribution towards their PF account is deemed eligible for tax exemption. Moreover, earnings generated through EPF scheme are exempted from taxes. Such exemption can be availed up to a limit of Rs. 1.5 LAKHS. The tax benefits applicable to the Employees Provident Fund scheme ensure higher earnings to the members. It further improves savings and an individual’s purchasing power in the long-term.  Easy premature withdrawal – Members of EPF India are entitled to avail benefits of partial withdrawal. Individuals can withdraw funds from their PF account to meet their specific requirements like pursuing higher education, constructing a house, bearing wedding expenses or for availing medical treatment. What is the rate of interest offered by the EPF Scheme? For the Financial year 2019-2020, the pre-fixed rate of interest offered by the EPF scheme is 8.55%. The interest amount accrued on the investments in a PF online account is tax-free. Such interest is paid only on the operative PF accounts of employees who are yet to retire. But the interest thus accrued on such accounts is taxed as per an EPF employee member’s tax slab. 150 CU IDOL SELF LEARNING MATERIAL (SLM)