Define Assessment year and Previous Year.
Assessment Year is the period of 12 months which starts from 1st April and ends on 31st March.
For example: 1st April 2011 to 31st March 2012.
Previous Year is the financial year immediately preceding assessment year.
For example: 1st April 2010 to 31st March 2011 is the year in which income was earned which will be assessed or charged to tax in A.Y 2011-2012.
What does the term Person includes?
According to Section 2(31), the term Personal includes:
- An Individual
- A Hindu Undivided Family
- A Company
- A Firm
- An Association of Persons or A Body of Individuals
- A Local Authority
- Every Artificial Person not falling under any of the preceding sub-clauses.
What are the five heads of income to calculate Total Income of the Assessee?
- Income from Salaries
- Income from House Property
- Profits from Business and Profession
- Income from Capital Gains
- Income from Other Sources
Who is a Resident and Ordinarily Resident (ROR)?
An individual is treated as Resident and Ordinarily Resident if he satisfies any one of the basic conditions and both the following additional conditions –
- He is in India for a period or periods amounting in all to at least 182 days in the relevant previous year.
- He is in India for 60 days or more during the relevant previous year and has been in India for 365 days or more during four previous years immediately preceding the relevant previous year.
- He has been Resident in India for at least 2 out of 10 previous years immediately preceding the relevant previous year.
- He has been in India for 730 days or more during 7 previous years immediately preceding the relevant previous year.
What is Incidence of Tax in the case of Resident but Not-ordinarily Resident?
A Resident but Not-ordinarily Resident is taxable in respect of
- Income which is received or deemed to be received in India in the previous year.
- Income which accrues or arises or is deemed to accrue or arise in India during the previous year.
- Income which accrues or arises outside India from a business controlled or profession set up in India.
- Income received outside India from a business controlled or profession set up in India.
Which incomes are deemed to have accrued or arisen in India, even if they accrue or arise outside India?
- Income from a business connection in India.
- Any income which arises from any tangible property situated in India, whether movable or immovable.
- Income from transfer of any capital asset situated in India.
- Any salary earned in India, even if it is paid outside India.
- Salary paid by Government to an Indian citizen or Indian national for services rendered outside India.
Which incomes are exempt under sec. 10 of the Act?
- Agricultural Income
- Share of profit of a partner from a Firm
- Amount received under a life insurance policy.
- Interest, premium or bonus on specified investments.
- Educational Scholarship
- Payments to MPs, MLAs etc.
- Income to Local Authority.
- Income of a Mutual Fund.
- Income of a Venture Capital Fund.
- Income of Trade Union
- Income of Certain Funds
- Income of employees State Insurance Fund.
- Capital Gains arising from the transfer of units of UTI
- Dividend received from a Domestic Company.
- Capital Gains due to compulsory acquisition of agricultural land.
- Long term capital gains from the transfer of securities.
- Occasional Incomes or Gifts.
Which are the main items included in Salary?
- Annuity or Pension
- Fees commission, perquisites or profits in lieu of salary or in addition to salary or wages
- Advance of Salary
- Payment received from the employer for the period of leave not availed.
Gratuity is the amount payable by the employer to the employee as recognition for the long term association of the employee with the employer.
It may be payable by the employer in two ways:
But in both the cases the treatment will be different. The amount paid by the employer to the employee on his retirement is taxed as ‘Income from Salaries’ while the amount paid by the employer on the death of the employee is taxed as ‘Income from Other Sources’.
- On employee’s retirement.
- On the death of the employee to the legal heirs of the employee.
Pension is a periodical payment received by the employee from the employer after he ceases to be the employee. It is taxed as Salary.
Calculation of pension is done in two forms:
Uncommuted Pension – is regular periodical pension to employee which is taxable to all kinds of employees.
Commuted Pension – is a lump sum payment in lieu of periodical pension:
If such pension is received by government employee then it is wholly exempt.
Non government employees can avail exemption to a certain extent:
- If employee is in receipt of gratuity, 1/3 of commuted value.
- If not, then one half of commuted value.
Which employers are covered under Voluntary Retirement Scheme?
- A Public Sector Company
- Any other Company
- An authority established under a Central or State Act
- A local Authority
- A Co-operative Society
- A University
What is Provident Fund Scheme and what are its types?
Provident Fund Scheme is an employee welfare scheme. According to this a certain amount is deducted from the salary of the employee which is referred to a Employee’s Contribution to PF. In some cases, the employer also contributes as equal amount which is referred as Employer’s Contribution to PF. Both employees’ contribution as well as employer’s contribution is invested. The interest earned on such investment is credited to the PF Account of the employee.
Types of Provident Fund:
1. Statutory Provident Fund – maintained by Government organizations, local authorities, universities and educational institutions.
2. Recognized Provident Fund – is the fund to which the provisions of employees Provident Fund and Miscellaneous Provisions Act, 1952 apply.
3. Unrecognized Provident Fund – is not recognized by the income tax authorities.
What do you understand by Superannuation Fund? How is it taxed?
Superannuation fund is an employee welfare scheme which is usually applicable in case of very senior employees. When the employee ceases to be the employee, employee’s contribution, employer’s contribution and the interest thereon is paid to the employee and in case of death of the employee to the legal heirs of the employee.
The tax treatment in case of an Approved Superannuation Fund is as below:
- Employee’s contribution to the superannuation fund is eligible for rebate under Sec 80C of the Act.
- Employer’s contribution to the superannuation is exempt from tax.
- Interest on the accumulated balance in the superannuation fund is exempt from tax.
- The amount paid to the employee in lieu of or in commutation of an annuity on his retirement on or after the specified age or on his becoming in capacitated prior to such retirement is exempt from tax.
- The amount paid by way of refund of contribution to the legal heirs on the death of the beneficiary is also exempt from tax.
List down the allowances that are fully taxable.
- Dearness Allowance
- City Compensatory Allowance
- Medical Allowance
- Lunch Allowance
- Servant Allowance
- Family Allowance
- Warder Allowance
- Overtime Allowance
- Family Allowance
What are the special allowances which are exempt to the extent amount received or the amount spent?
- Travel on tour or on transfer
- Ordinary daily charges incurred on account of absence from normal place of duty
- Conveyance allowance granted to meet the expenditure incurred on conveyance, performance of duties, provided free conveyance is not provided by the employer.
- Expenditure incurred on a helper in the performance of duties.
- The academic, research and training pursuits in educational and research institutions.
- Purchase or maintenance of uniform for wear during the performance of duties.
What is the criterion for exemption of H.R.A?
Exemption of H.R.A depends upon the following:
- Salary of the employee,
- House Rent Allowance,
- Rent paid by the employee,
- The place where the house is taken on rental basis.
Which perequisites are exempt from tax in the hands of employees?
- Tea or other non alcoholic beverages and snacks provided during the office hours.
- Free meals provided by the employer during the office hours provided that the value per meal does not exceed Rs. 50.
- Amount spent for training the employees and amount spent by the employer as fees for sending the employee to refresher courses.
- Annual premium paid by the employer for the accident insurance policy taken by the employer in the name of the employee.
- The amount of telephone bills of the employee reimbursed by the employer.
- Any recreational facility provided by the employer to a group of employees is exempt from tax.
On what conditions deductions will be allowed from Income from other sources?
Any expenditure incurred for earning the income which is included under the head income from other sources will be allowed as a deduction from such income provided that the following conditions are satisfied:
- The expenditure should not be capital expenditure
- The expenditure should not be personal expenditure
- The expenditure must have been incurred exclusively for earning the income chargeable under the head income from other sources.
- There should be a clear relationship between expenditure incurred and the income earned.
What type of income is included under the head of Income from other sources?
- Bank Interest
- Interest on deposits with the companies
- Interest received on delayed refund of income tax
- Interest on Loan
- Insurance commission
- Agricultural income received from a land situated outside India
- Sitting fees received by a director for attending board meetings
- Remuneration received by a Member of Parliament
- Family Pension - The amount of pension received by the legal heirs of a deceased employee.
- Interest on Income Tax Refund
Differential between Short term Capital asset and Long term Capital asset.
Short term capital assets are those assets which are held by an assessee for not more than 36 months, immediately prior to its date of transfer. But in the following cases an asset help for not more than 12 months is treated as short term capital asset:
Long term capital assets are those assets which are held by an assessee for more than 36 months.
- Equity or Preference shared in a company.
- Securities listed in a recognized stock exchange in India.
- Units of UTI
- Units of a mutual fund specified under sec 10(23D)
1. What are the roles and responsibilities of a CA in a firm or an organization?
2. Explain the accounts payable cycle.
3. On which side of the balance sheet TDS received should be shown?
4. What do you understand by inactive accounts and dormant account?
5. Explain Perpetual and Periodic Inventory systems?
6. Currently how many accounting standards are published?
7. Explain fictitious assets with an example?
8. What accounting entries you need to pass in branch accounts?
9. What are the mandatory disclosers that a company needs to make to the market regulator?
10. What will you do to control ineffective spending on an activity?
11. Do the responsibilities of a CA vary between industries and departments?
12. What do you consider to be the biggest challenge facing the accounting profession today?
13. How is accounting different from auditing?
14. What is marginal cost?
15. What do you mean by material facts in accounting?
16. Define offset accounting?
17. What is the difference between provision and reserve?
18. What is Use of statistics in accounting?
19. What are cost accounting and its applications?
20. How to prepare finalization accounts?
21. What is meant by partitioning?
22. Explain the accounts payable cycle.
23. What are accounting ethics which a CA should practice?
24. What is accounting chart of accounts?
25. What is definition of a cash float in accounting?
26. What is fair value accounting?
27. What is balance sheet and off balance sheet?
28. What is depreciation? How many types of depreciation do you know?
29. What are trade bills?
30. What are the disadvantages of back-flush accounting?
31. What is the TDS effect in balance sheet if TDS is received?
32. What is dividend warrants?
33. What is an operative accounts?
34. What is fiduciary accounting?
35. What is Letter of Credit?
36. How can you do credit control?
37. What does it mean to do accounting training outside of public practice?
38. What is Capital Budget?
39. What is budgeting?
40. What is difference between forecast and budget?
41. What is the best way to code expenses like Coding license agreements, service contracts and maintenance contracts to a GL?
42. What do you mean by DOA?
43. How is a PO (purchase order created)?
44. How does the payment mechanism work?
45. What is debit and credit from the banks point of view?
46. What is debit and credit from the customer point of view?
47. What is the pay roll system?
48. What is FBT (fringe benefit tax)?
49. What is interest on capital, how it is calculated?
50. What are the types of purchase order status and what is their relevance?
51. What is Account payable audit?
52. What is an IFA?
53. What is the difference between EFT & wire?
54. What is accumulated loss?
55. What is the meaning of TDS? How it is charged?
56. What do you mean by financial instruments?
57. What is a NAFCO?
58. What is SLA?
59. Why are accounting firms needed?
60. What are the differences between Indian accounting standards and international accounting standards?