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COMPUTATION OF TOTAL INCOME
How to Compute Total Income
The steps in which the Total Income, for any assessment year, is determined are as follows:1. Determine the residential status of the assessee to find out which income is to be included in the computation of his Total Income.2. Classify the income under each of the following five heads. Compute the income under each head after allowing the deductions prescribed for each head of income.
(a) Income from SalariesSalary/Bonus/Commission, etc. ---Taxable Allowance ---Value of Taxable perquisites ---Gross Salary ---Less: Deductions under section 16 --- Net taxable income from Salary ---
(b) Income from House PropertyNet annual value of House Property ---Less: Deductions under section 24 ---Income from House Property ---
(c) Profit and Gains of Business and ProfessionNet profit as per P & L Account --- Less/Add: Adjustments required ---to be made to the profit as per provisions of Income-tax Act.Net Profit and Gains of Business and Profession ---
(d) Capital GainsCapital Gains as computed ---Less: exemptions under section 54/54B/54D, etc.---Income from Capital Gains ---
(e) Income from Other SourcesGross Income ---Less: Deductions ---Net Income from Other Sources ------Gross Total Income [(a) + (b) + (c) + (d) + (e)]Less: Deduction available under Chapter VIA ---(Sections 80C to 80U) ------Total Income
Computation of Total Income
2 Income from house property
3 Profits and gains of business or profession
4 Capital Gains
5 Income from other sources
TOTAL INCOME is computed under the respective heads after allowing from gross receipts admissible deductions for cost and expenses. The net income under each of these heads is then aggregated to arrive at the 'Gross total Income'. Computation of income under individual heads is explained in paragraphs following.
Income from salaries is computed in accordance with the provisions of section 15 to 17 of the Act. 'Salary' means all remuneration paid or due under the contract of employment. It includes wages, annuity, pension, gratuity, fees, commission, perquisites, profits in lieu of or in addition to any salary or wages, any advance of salary, leave salary encashment or any other payment by the employer for services rendered. The annual accretion to the balance at the credit of an employee participating in a recognised provident fund in excess of the prescribed limit is includible in the salary income of the employee. 'Perquisites' mean the benefits or amenities provided in kind by the employer free of cost or at a concessional rate. The value of these is regarded as part of salary. Rule 3 of the Income TaxRules lays down the methods for determining the value of certain perquisites. For others the general rule of valuing the perquisites in the hands of the employee is to take the cost to the employer in providing the benefit or amenity. It has been clarified that securities allotted to an employee free of cost or at concessional rate under ESOP or as sweat equity shares will not be taxable as perquisite.
In order to be taxable under the head 'Salaries', it is necessary that there is a relationship of employer and employee between the payer and the receiver. It is for this reason remuneration received as a partner is not taxable as 'salary'.
In computing the salary income for the assessment year 1999-2000, a standard deduction is allowed as under:-
Where salary income is upto Rs. one lakh - 33-1/3% or Rs. 25,000/- whichever is less.
Where salary income exceeds Rs. one lakh but does not exceed rupees five lakh - Rs. 20,000/-.
Where salary income exceeds rupees five lakh - NIL
Deduction for profession or employment tax levied by State Government is also allowed.
Income from house property
Income from house property is computed in the hands of the owner in accordance with the provisions of sections 22 to 27 of the Act. It is determined with reference to its 'annual value', i.e. the sum for which the property might reasonably be let from year to year. However, where any property is tenanted and the annual rent received or receivable by the owner is in excess of the sum for which the property might reasonably be expected to be let from year to year, the actual annual rent received or receivable is taken as the annual value of the property.
From the annual value of a house property in the occupation of a tenant, taxes levied by any local authority in respect of the property to the extent such taxes are borne by the owner are deductible on actual payment basis to arrive at the 'net annual value'.
Where the property consists of a house or a part of a house which is in the occupation of the owner for his own residence, its annual value is taken as Nil. But if such a property is let out during any part of the previous year, its annual value is taken proportionately. Further, where the owner has only one resedential house and the house cannot be actually occupied by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him, its annual value is taken to be nil provided the house is not actually let out and no other benefit is derived by the owner from it.
From the net annual value, determined as above deductions on account of annual repairs and collection expenses (1/4th of the net annual value irrespective of actual expenditure), insurance charges in respect of property, any annual charge, interest paid on any money borrowed for the building, ground rent, land revenue, unrealised rent are allowed. All these deductions are not allowed in respect of the house property in the occupation of the owner for his own residence, the annual value of which is taken at Nil. In such a case deduction is allowed only for interest and that too upto Rs. 1,00,000 only provided the house was constructed or acquired after 1.4.1999 but before 1.4.2003.
Under the circumstances mentioned in Sec. 27 of the I.T. Act, a person can be deemed to be the owner of the house property and in such a case the income .from that property is taxable in the hands of that person.
Where the net result of computation of income from house property is loss and the assessee has income assessable under any other head of income, he is entitled to have such loss set off against income under other heads. Any loss remaining unadjusted can be carried forward to the following assessment year for set-off against income from house property in that years and in succeeding seven years.
Profits and gains of business or profession
Income from business or profession is computed in accordance with the provisions of sections 28 to 44D of the Act. The expression 'business or profession' includes any trade commerce or manufacture or vocation. Apart from income from any of these activities the income chargeable under this head includes the following receipts as well:-
Compensation received for the termination or for modifications in terms and conditions of any managing agency agreement.
Income of trade, professional and similar associations from specific services performed for its members.
Value of any benefit or perquisite arising from any business or profession.
Profit on sale of a replenishment license, cash assistance or refund of duty drawback granted to the exporters.
Any interest, salary, bonus, commission or remuneration due to or received by a partner of a firm from such firm.
Any sum received under a keyman insurance policy including bonus on such policy.
Primarily the business or professional income is computed as per the accepted business and accounting norms and in accordance with the method of accounting regularly employed by the tax payer. Thus, whatever constitutes a legitimate outgoing of revenue nature of a business is allowed as a deduction in computing the business income. However, certain deductions are allowed in the Act as per the specific provisions made with regard to those deductions and certain deductions, though business related, are not allowed because of specific bar on their allowance under the Act.
Some of the specific provisions made in law for permissible deductions in computation of business or professional income relate to the following items of expenditure and outgoings:-
rent, rates, taxes, repairs and insurance of premises used for the purpose of business or profession;
repairs and insurance of machinery, plant and furniture used for the purpose of business of profession;
depreciation of tangible assets viz., building, machinery, plant and furniture and intangible assets viz., know how, patents copy rights, trade marks, licences, franchises or any other business or commercial rights of similar nature owned by the tax payer and used for the purpose of business or profession;
Expenditure in respect of scientific research:-
On in-house research related to the business of the assessee.
Capital expenditure (except expenditure on land) in relation to the research related to the business.
Contribution to an approved University, college, association or institution for scientific research including research in social science or statistical research.
For payment to a National Laboratory or a University or an Indian Institute of Technology for scientific research under an approved programme, a weighted deduction equal to one and one-fourth time the sum paid is allowable.
Expenditure of deffered revenue nature which are amortised over a number of years. These are:-
(a) On acquisition of patent rights and copy rights (Sec. 35A) 14 years (upto A.Y. 1998-99) (b) On acquisition of know-how (Sec.35AB) 6 years (upto A.Y. 1998-99) (c) Preliminary expenses on setting up of business (Sec. 35D) 5 years (d) On prospecting for or extraction or production of mineral deposits (Sec.35E) 10 years (e) Expenditure in the nature of capital expenditure on obtaining licence to operate telecommunication services (Sec. 35ABB) Years during which the licence remains in force. premium in respect of insurance against risk of damage or destruction of stock and stores used for business or profession;
premium in respect of health insurance of the employees;
bonus and commission to employees;
interest on capital borrowed for the business or profession;
contribution to a recognised provident fund, an approved superannuation fund or an approved gratuity fund;
bad debts; and
payments to notified Rural Development Fund or to National Urban Poverty Eradication Fund or to approved organisation/institutions enaged in activities of conservation of natural resources or afforestation or for carrying out eligible projects or schemes approved by the National Committee.
In addition, there is a residuary provision under which the tax payer can claim deduction in respect of any expenditure incurred wholly and exclusively for the purpose of the business or profession.
This omnibus clause is not available for claiming any expenditure for which a specific provision is made or for expenses of capital or personal nature or expenditure for any purpose which is an offence or which is prohibited by law.
Expenses, even though business-related, which are not allowed as deduction are
expenditure on advertisement in any souvenir etc. of a political party;
any interest, salary, royalty, fees for technical services or other sum payable outside India from which due tax has not been deducted at source;
any tax calculated on the basis of profits or gains of the business or profession e.g. income tax;
Apart from these; the tax authorities may disallow, or restrict the deduction to a reasonable level, where the payments are made to any close relative or a business associate. Claims are also to be disallowed to the extent of 20% where payments in excess of Rs. 10,000/- are not made by a crossed cheque or a crossed bank draft.
The above stated principles of computation of business income apply uniformly to all forms of business activities. However, there exist certain special provisions under the Act which deal exclusively with taxation of business income from certain specific activities. These provisions make departure from the normal manner of computing income as explained above and prescribe for working out the taxable income on presumptivebasis as per the norms laid down. These are:-
(i) Business of civil construction or supply of labour for civil construction where the total receipts do not exceed 40 lakh rupees (Sec.44AD) Profit as declared in the return or the sum equal to 8% of the gross receipts of the previous year, whichever is higher. (ii) Business of plying, hiring or leasing goods carriage, where the assessee does not own more than ten goods carriages (Sec. 44AE) Profit as declared in the return of income or the sum calculated at Rs. 2,000/- per month or part of a month for heavy goods vehicle and Rs. 1,800/- per month or part of a month for other vehicles, whichever is higher. (iii) Retail trade in goods or merchandise where the total turnover of the previous year does not exceed forty lakh rupees. Profit as declared in the return of income or the sum equal to 5% of total turnover of the previous year, whichever is higher.
Further there are special provisions for computing presumptive income in the case of non-residents engaged in the business of shipping, exploration, etc. of mineral oils, operation of aircraft and civil construction etc. in certain turnkey power projects. Such provisions also exist for taxation of income from certain dividends, interest and units derived by a non-resident or a foreign company and from royalty or fees for technical services derived by a foreign company. A detailed discussion about such provisions is made in Chapters VIII and X.
It is obligatory on persons engaged in certain specific professions such as legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, authorised representatives, film artists etc., to maintain books of accounts in a manner which may enable the assessing officer to compute their taxable income. The obligation to maintain such books of accounts is also on all other professions and business if the income in any of the preceding three years exceeded rupees 1,20,000 or the turnover/receipts in any of the preceding three years exceeded rupees ten lakhs. For the business or profession which is newly set up the obligation arises if the income or turnover/receipts is likely to exceed these amounts in the previous year. Persons engaged in activities mentioned in para 4.4.6 are exempted from such obligation.
Further, every person carrying on business or profession in India must have his accounts audited by a chartered accountant if his turnover exceeds Rs. 40 lakhs (Rs. 10 lakhs for professional receipt). A copy of the audited accounts and auditor's report are required to be furnished by the due date of filing the retrun of income. Certain other particulars are required to be filed alongwith the return of Income. The requirement to getthe accounts audited does not apply to persons enaged in activities mentioned in para 4.4.6.
In case of a partnership firm deducation for certain payments made to its partners like interest and remuneration is subject to ceiling laid down in sec. 40 (b) introduced by Finance Act 1992.
Sections 45 to 55A deal with the provisions relating to computation of income from capital gains. Gains arising from the transfer of a capital asset are either short-term or long-term depending upon the period for which the assets giving rise to capital gains were held by the tax payer. A gain is short term if the asset was held for a period upto 36 months. In the case of share of a company, listed security, unit of Unit Trust of India or of any other specified mutual fund, this period is 12 months. All other gains i.e. those arising from assets held for more than this period are called 'Long-term capital gains'.
Capital gain is computed by deducting from the full value of transfer consideration the following:-
the cost of acquisition (or the written down value) of and cost of improvement in the asset;
the amount of expenditure incurred in connection with such transfer.
The resultant amount in case of short term capital gains is taxable in full at the normal rate of taxation applicable to the tax payer.
In case of the following self-generated assets where there is no cost incurred by the assessee, the law provides for the cost of acquisition to be taken as 'NIL' :-
Goodwill or a right to manufacture produce or process any article or thing.
Stage carriage permit
In case of slump sale of an undertaking or a division thereof, its net worth is to be taken as cost of acquisition. This cost of acquisition is not to be indexed as stated in para 4.5.4.
There are special provisions for computation of long term capital gains. In such cases, the actual cost of acquisition and the cost of improvement of the asset is adjusted to take account of inflation in terms of the Cost Inflation Index which is notified by the Central Government every year. For those assets which areacquired prior to 1st April, 1981, the actual cost can be taken to be its fair market value as on 1st April, 1981 which is than adjusted for inflation in the same manner.
Long term capital gains computed after taking into consideration the indexed cost of acquisition and/or cost of Irnprovement is taxable for and from the assessment year 1988-89 at the flat rate of 20% irrespective of the residential status of the assessee. Exceptions are made in the case of certain categories of non-residents and NRIs (Refer para 7.3.4 and 11.3). In respect of gains arising from transfer of listed securities or unit tax so computed @.20% will be limited to 10% of capital gain worked out without indexation benefit.
No indexation benefit is available on bonds and debentures as also in respect of Global Depository Receipts purchased by a resident employee under ESOP in foreign currency.
In case of non-residents, protection against loss arising from fluctuation in rupee value is provided in computation of capital gains if the share or debenture of an Indian company was acquired by utilising foreign currency. This is done to ensure that the amount of capital gains chargeable to tax is not influenced by the exchange rate fluctuation and represents only the accretion in value. The manner of granting such protection is mentioned in para 7.3.1 of Chapter VII.
Transfer of a capital asset in a scheme of amalgamation or demerger is not regarded as a transfer for the purpose of capital gains when the amalgamated or the resulting company is an Indian company. Further, transfer of a capital asset being shares in Indian companies from one foreign company to another, in a scheme of amalgamation or demerger would not be regarded as a transfer if certain conditions are satisfied (para 7.3.2). Exemption from tax is also provided, subject to fulfillment of certain condition, when assets are transferred as a result of succession of a sole proprietory concern or a firm by a company.
In case the capital gain arising from transfer of an asset is used for acquiring similar assets within a specified period, the whole or the proportionate amount of capital gain is not included in the income depending upon whether the whole of the capital gains is so used or only part of it is used for acquiring a new asset. Such cases are gains from residential house, agricultural land and from transfer of industrial undertaking (For details sections 54, 54B and 54G may be referred to). Gains from any long term asset if used for purchase or construction of residential house where the person has only one residential house is also exempt (Sec. 54F). Similarly gain arising from transfer of any long-term capital asset is exempt-wholly or proportionately as the case may be-if the net consideration in respect of such transfer is wholly or partly invested, within a period of six months, in any of the bonds, debentures, shares of a public company or units of a mutual fund specified by the Board for the purpose of Section 54EA and notified in the official gazette. The assessee has the option to invest only the amount of capital gain in assets specified by the Board for the purpose of Section 54EB in which case the gain will be wholly or proportionately exempt depending upon whether whole or part of the gain is so invested. The new assets cannot be transferred or converted into money within three years (if the net consideration was invested) and within seven years (if the capital gain only was invested). In the event of such transfer or conversion, the gains exempted on investment are brought to tax in the year of transfer or conversion of new assets and Rural Development or by the National Highways Authority of Indian which are redeemable after five years. However gains arising from transfers after 31.3.2000 will be required to be invested only in bonds issues by National Bank for Agriculture.
Special provisions exist for taxation of capital gains arising to offshore funds from transfer of units purchased in foreign currency, to non-residents from transfer of bonds or shares purchased in foreign currency and to Foreign Institutional Investors from transfer of listed securities purchased in foreign currency. These provisions are explained at 7.3.4 in Chapter VII.
Income from other sources
Sections 56 to 59 deal with the provisions for computation of income under the head 'income from other sources'. This is a residuary head covering all incomes which do not specifically fall .under any of the heads mentioned earliers. Some of the types of income which are assessable under this head are mentioned belows :-
Dividends or income from units of mutual fund.
Interest including 'interest on securities' if it is not taxable under the head 'Profits and gains of business or profession'.
Income such as
Ground rent or rent received or sub-letting a property.
Winning from lotteries, cross-word puzzles, races including horse races, card games or from gambling or betting etc.
Income from hiring of machinery, plant or furniture unless such a hiring is the business of the taxpayer.
In computing the taxable income under this head, deduction is allowable for expenditure (other than capital expenditure) which is incurred by the tax payer wholly and exclusively for the purpose of earning such income. Besides, in assessing dividend income, any remuneration or commission paid for realising such income is allowed as deduction. In assessing income from letting the machinery, plant or furniture on hire, the depreciation on the value of such assets calculated in the same manner as in respect of assets used in a business or profession is allowable as a deduction. No deduction is, however, allowed in respect of-
any personal expenditure of the tax payer;
any salaries or interest payable outside India from which tax is deductible at source under the Act but has not been deducted.
Further, no deduction in respect of any expenditure or allowance is made in computing income from winnings referred in (iii) (b) of para 4.6 above. Such income is taxable at a flat rate of 40 per cent under the provisions of Section 115BB.
A standard deduction equal to 33-1/3% of the pension amount or Rs. 15,000/- whichever is less is allowed in computing income from family pension.
Set off of Losses
In case of computation of income under any of the heads of income results in a loss figure, such loss can be set off against income under any other head (including capital gains) in the same year. This, however, does not apply to losses from speculative transactions, losses from owning and maintaining race horses or to losses under the head 'Capital Gains'. Losses of these excluded categories can be set off only against income, if any, from activities in the same category in that year.
Carry Forward of Losses
Losses under the head 'Profits and Gains of business or profession' except those sustained from speculative activities which cannot be set off against income under any other head within the same year can be carried forward to the succeeding eight years and set off only against income under the same head in those years. In case of -
amalgamation of company owning industrial undertaking or a ship with another company;
a demerger of a company;
a reorganisation of business resulting in succession of a firm or a proprietory concern by a company;
the accumulated losses or unabsorbed depreciation of the amalgamating company, demerged company or the predecessor concern will, subject to fulfillment of certain conditions (sec. 72A), be treated as losses or depreciation of amalgamated company, resulting company or the successor concern and will be allowed to be set off and carried forward as their own loss or depreciation Gains which would not be set off against income of respective nature in any year can be carried forward for eight succeeding years for set off against income of similar nature, if any, in those years. Losses in the activity of owning and maintaining race horses can be carried forward for set off against profits of similar activities in succeeding four years only.
Losses under the head income from house property which could not be set off against income under any other head can be carried forward for eight succeeding years for set off against income under this head in those years.
If 51% or more of the voting power changes hands in an unlisted company, the company will not be able to carry forward losses incurred before such change.
Theory Question and Answers:
What is an "income withholding order " for child support?An income withholding order is an order for a specified amount of child support to be paid by withholding income from your employee's paycheck. All child support orders entered in Massachusetts must include a provision for immediate income withholding unless the court suspends the withholding. If the parent who pays support has a regular source of income, then the income withholding order requires child support to be deducted from the income. Deducting child support from an employee's paycheck is similar to deducting tax payments. When DOR is notified of a new child support order, it issues an "Order/Notice of Order to Withhold Income for Child Support" (a form mandated by federal law). The link above shows an example of the form.
Who determines the amount of an income withholding order?In Massachusetts, a judge determines the amount of child support to be paid. If the employee has fallen behind in child support payments, Massachusetts law authorizes DOR to increase the order by 25% without going back to court to ask the judge to change it. DOR will send you a new income withholding order if there is any change to the amount you are deducting.
How will I know if one of my employees has an income withholding order for child support?Once a judge orders child support, either the court or DOR will send you an income withholding order. In addition, any employee who is ordered to pay child support through income withholding is required by law to notify you and to provide you with a copy of the income withholding order, upon your request.
When should I start to withhold child support payments?You must begin withholding child support from your employee's paycheck immediately, starting with the first payroll date following your receipt of the income withholding order.
Will my employee know why the income is being withheld?Yes. The court or DOR will inform your employee of the income withholding order. If he or she claims not to have received notice of the order, or has disputes with the amount being deducted, advise your employee to contact DOR. Under no circumstances, however, may you delay processing the income withholding order. If you fail to honor the order, you may be liable not only for the full amount of the income that you failed to withhold and remit, but also for civil penalty equal to the amount you failed to remit or $500, whichever is greater. Notice from DOR of the income withholding order is sufficient notice to you. DOR is not required to provide a copy of the court order for the support.
Do I deduct child support payments only from an employee's wage or salary?No. You must deduct child support payments from any source of periodic compensation your employee receives, including bonuses, commissions, severance pay, and payments to independent contractors and others.
Is there a limit on the amount of child support I can deduct from an employee's paycheck?Yes. The limit of child support deducted depends on certain circumstances. Pursuant to the Consumer Credit Protection Act (CCPA), you cannot deduct more than 60% of an employee's disposable earnings (50% if the employee is supporting a spouse or other children in his or her household). If, however, an employee is 12 or more weeks behind in child support payments, the limits increase to 65% and 55% respectively.
What are an employee's "disposable earnings?"Disposable earnings are the earnings remaining after you deduct federal, state and local income taxes, Social Security, state unemployment insurance taxes, and any deduction required under a state employment retirement system.
What if an employee has other deductions and the income withholding order will make the total deductions exceed the allowable limit?Child support payments must be deducted from an employee's disposable earnings before any other deductions, including union dues, credit union deductions, or voluntary retirement deductions. You apply the limit only if the child support order itself exceeds the permissible percentage.
How long does an income withholding order remain in effect?An income withholding order remains in effect until the court, DOR, or your employee provides you with written verification that the court order has terminated or has been modified.
If I overpay child support, may I deduct that amount for the next payment?No. You are under obligation to remit to DOR the amount ordered by the court. If you think you overpaid on a child support case, contact our Employer Services Unit immediately.
What happens if there in an income withholding order and the employee stops working for my company?When an individual who is subject to an income withholding order stops working for your company you should: (1) notify DOR that the individual no longer works for your company; (2) provide DOR with any information you have concerning the name and address of the individual's new employer. This information can be given to DOR by calling our Employer Services Unit or by adding it to the Employer Remittance Form (ERF). In addition, you must advise the individual of his or her legal obligation to notify the court and DOR of any subsequent employment.
What should I do when my company lays off an employee who is subject to an income withholding order?You must notify DOR immediately when the employee is laid off. If the employee returns to your company within 30 days after the lay-off, you should begin deducting child support payments immediately according to the income withholding order and notify DOR of the employee's return to work. If the employee returns after more than 30 days, you should follow the instructions for submitting new hire reports and include the employee in the report.
What should I do if a seasonal employee is subject to an income withholding order and the employment ends?You must notify DOR when the employment ends and provide DOR with any information you have concerning the name and address of the individual's new employer. You should also advise the individual of his or her legal obligation to notify the court or DOR of any subsequent employment. If the individual returns to work for your company, you should follow the instructions for submitting new hire reports and include the employee in this report.
Am I legally obligated to implement the income withholding order for child support?Yes. You are subject to the following penalties if you fail to implement an income withholding order:1. Full responsibility for the amount of income you failed to withhold and remit; and2. A civil penalty equal to the amount you failed to remit or $500, whichever is greater.
Can I fire or refuse to hire an employee because he or she is subject to an income withholding order?No. State and federal laws prohibit you from disciplining or refusing to hire anyone because of an income withholding order. If you violate these laws, you are liable for the payment of all wages and employment benefits lost by an employee or individual from the time of the unlawful discipline, suspension, refusal to hire, or discharge, to the period of reinstatement, and an additional penalty of up to $1,000.
What happens to an employee who fails to make child support payments?The employee may be held in contempt of court. Additionally, when DOR is providing services to enforce the order, DOR is authorized to use a variety of methods to collect past due child support payments, including liens, levies and/or seizure of the employee's assets. An employee who is delinquent in child support payments may also have his or her tax refunds intercepted and credit rating affected. In some instances, an employee may face criminal prosecution for failing to support his or her child. Massachusetts law also authorizes DOR to increase the order by 25% when a child support debt accrues. DOR will send you notice of when to increase the amount withheld.
What if I get an income withholding order from another state?An income withholding order issued by one state may be sent directly to the parent's employer in another state. You must honor an order if it is substantially similar to the "Order/Notice to Withhold Income for Child Support" DOR issues. In addition, you must give a copy of the order to the employee immediately. You must send the child support payment to the address of the state child support payment processing center that appears on the income withholding order, and you must continue to honor the notice until official notice is received from the child support enforcement agency or the court of the state that issued the order. NOTE: You may not consolidate into the payment you send to DOR any payments being made pursuant to an order from another state.
Centralized Collections and Disbursements
Can I handle all child support payments I deduct from my employee's paychecks the same way?You can send all child support payments you withhold to DOR if DOR sent you an income withholding order for the employee. If DOR has not sent you an income withholding order, but the employee or Massachusetts court sent you the order, you can send the payment to DOR if you provide a copy of the income withholding order and the name, Social Security numbers and addresses of the employee and the parent to receive the support. If you receive a withholding order from another state, you must honor that order and send the amount withheld to the other state's child support payment processing center whose address on the income withholding order.
What information do I need to provide to send child support payments through DOR?For each case in which you have not previously sent an employee's child support payment through DOR, you must send us the employee's name, address, Social Security number, and a copy of the most recent income withholding order. Additionally, you must provide us with the names of the parent receiving support and all dependent children. You do not need to send any new information for those employees whose child support payments you already send to DOR.
Q-1 Compute total income of X from the particulars given below:
Basic pay: Rs. 12,000 pm; education allowance for one child: Rs. 300 pm; bonus:
Rs. 20,000 and salary in lieu of leave: Rs. 15,000; medical expenses of a private hospital reimbursed by the employer: Rs. 24,000; rent free unfurnished flat in Calcutta for his residence for which the employer paid a monthly rent of Rs. 8,000 pm. He contributed Rs. 18,400 to the recognized provident fund and an equal amount was contributed by his employer. Interest credited @ 14% in the provident fund account was Rs. 16,800. He used employer’s car of 1.6 liters cubic capacity for his personal and official purposes. All expenses including salary of driver was met by the employer. He received Rs. 14,000 from bank as interest, dividend of Rs. 10,000 from a foreign company and winning from horse race of Rs. 42,500 (gross). He paid Rs. 500 professional tax and donated Rs. 5,000 to the national defense fund.
Q-2 X is a principal in a college of Delhi University. His details of income are:
Basic Pay: Rs. 10,000 pm; Dearness allowance (forming part of salary) Rs. 1,600 pm; City compensation allowance Rs. 400 pm; House rent allowance Rs. 2,400pm; examination remuneration from various universities Rs. 8,000 pm; Annual dividend received from Indian Company Rs. 20,000; Being principal of the college he has been given a free telephone at his residence, costing the college Rs. 13,200 in a year. The college has also provided him a domestic servant @ Rs. 400 pm. He spent Rs. 16,000 on the treatment of his wife in a private hospital in Delhi. The medical bill was fully reimbursed by the college. During the year, the college also reimbursed hi, Rs. 6,000 for his travel to Kashmir under leave travel concession scheme. He is a member of statutory provident fund to which the colleges contribute 8 % of his salary. Interest on accumulated provident fund is Rs. 3,300 (the rate of interest being 13%). He pays rent of Rs. 2,600 pm in respect of accommodation
occupied by him for his residence. He donated Rs. 9,000 during the year to the government for the promotion of family planning and Rs. 3,000 to the national defense fund. His own contribution to provident fund is 15% of basic salary and dearness allowance.
Q-3 X furnishes the following particulars of his income:
Basic salary Rs. 16,000 pm; bonus Rs. 20,000 pa; hostel allowance Rs. 800 pm for one child; medical allowance Rs. 1,000 pm and actual medical expenses being Rs. 6,000. He and his employer both contributed Rs. 24,000 each to the recognized provident fund. Interest credited to the recognized provident fund @ 15% was Rs. 21,000.
His s provided with an unfurnished residential house by his employer at Calcutta. The employer paid Rs. 8,000 pm as rent to the landlord and deducted Rs. 1,200 pm from the employer’s salary. He is provided with a maruti 100 cc car for his personal and official purposes by the employer, who incurred all the expenses, including the salary of driver.
He received Rs. 8,000 as interest from banks and won Rs. 60,000 (gross) from horse races. He paid Rs. 2,000 as professional tax and donated Rs. 10,000 to the national defense fund. Compute total income of Mr. X.
Q-4. X is employed in Y Ltd. He gives the following particulars of income:
Basic salary Rs. 16,000 pm. D.A. Rs. 1,000 p.m. (40% form part of salary) Commission on sale @ 4% Sales during the year were Rs. 4,00,000. House Rent Allowance 25% of B.P. Rent paid for house in Delhi Rs. 9,000 p.m. Car from employer @ concessional rate, expenditure being Rs. 22,000, 50% of the expenditure were born by Mr. X. Company contributed 30% of his salary to recognized provident fund. A similar amount was contributed by X. Interest credit to PF during year @ 13% is Rs. 26,000. He got leaves encashment during the year Rs. 10,000. He is the owner of the small house whose income is computed to Rs. 20,000. He received during the year interest from UTI Rs. 6,000 and net interest from listed debenture of Z Ltd. Rs. 9,000. His investments and savings, etc., are as follows:
1. He has paid LIC premium Rs. 4,000 (on own life policy). Rs. 6,000 (on
Life policy of Married Major son) and Rs. 4,000 (on life policy of father
2. He paid during the year health insurance premium Rs. 3,000 (on own
health), Rs. 3,000 (on wife health), Rs. 4,000 (on mother in law health)
and Rs. 2,000 (on his minor son’s health).
3. During the year, he donated Rs. 6,000 to National Defense Fund, Rs.
8,000 to government for Family planning and Rs. 8,000 to the charitable
trust covered by section 80 G.
Compute X’s Total Income and Deduction available to him u/s 80.
Q-5 X furnishes the following particulars of his income. Compute total income and deduction u/s 80.
Salary Rs. 15,000 p.m.; D.A Rs. 1,500 p.m. (50% forming part of salary);
Commission @ 1 % of sale (sale during the year was Rs. 10, 00,000); HRA Rs. 3,000 p.m. (he paid Rs. 5,000 p.m. as rent for a rented house in Delhi). He contributed 15% to recognize PF and his employer contributes the same amount. Interest credited to RPF @ 15% p.a. was Rs. 30,000. Net interest on listed debentures of Y Ltd. Rs. 8,100.
He paid Rs. 12,000 through a crossed cheque to the General Insurance
Corporation as medical insurance premium for his own health.
He donated Rs. 5,000 to rime minister National Relief Fund and Rs. 20,000 to a charitable hospital (eligible for deduction).
Q-6 X has furnished the following details with regard to his income:
Basis Salary Rs. 10,000 p.m. D.A Rs. 4,000 p.m.; Transport Allowance Rs. 1,000 p.m.; Education allowance Rs. 90 p.m. for each of his three children; Personal medical bills for the treatment of X reimbursed by the employer Rs. 19,000 (The treatment has been done by a private doctor).
He has been provided with an unfurnished house by the employer @ Rs. 400 p.m. for which the employer is paying a monthly rent of Rs. 4,000 p.m. His contribution for the company recognized PF is Rs. 2,000 p.m. the employer contributes an equal amount and also paid X’s Life insurance premium amounting Rs. 4,800. Interest Credited to the PF @ 13% p.a. is Rs. 6,500. Interest on Govt. Securities Rs. 18,000.
Compute his total income and deduction assuming he is living in Lucknow.
Q-7 The following are particulars of income of X:
Salary Rs. 15,000 p.m. contribution to PF @ 14% of salary, the employer also contributes a similar amount; interest credited to PF account @ 13% p.a. is Rs. 18,200; she is provided by her employer with a rent free unfurnished house ( rent paid by employer for the house Rs. 20,000) and proceeds of life insurance policy on maturity Rs. 20,000.
She paid Rs. 600 as employment tax to the state government. She also gave Rs. 10,000 as donation to a poor boy.
Compute her taxable salary if:
i) The provident fund is recognized
ii) The provident fund is unrecognized.
Q-8 Compute total income of X:
Net Salary received after deduction of: Rs. 1, 43,200
i) his own contribution in recognized PF Rs. 18,000
ii) income tax Rs. 14,000
iii) house rent Rs. 4,800
Employer’s contribution to recognized PF Rs. 18,000
Dearness Allowance Rs. 20,000
Education Allowance for two children Rs. 12,000
Entertainment Allowance Rs. 6,000
Provided unfurnished house for which rent was paid by employer
Rs. 36,000, but charged from employee Rs. 4,800.
Free use of gas, electricity and water, costing to employer Rs. 4,000
Provided 1.6 Ltr. Cubic capacity motor cars for personal use of employee.
All expenses borne by use of employee. All expenses borne by employer
(Cost of car Rs. 3, 00,000) Rs. 40,000
He earned taxable long term capital gain Rs. 60,000
Interest earned on fixed deposit in scheduled banks Rs. 8,000
Donation to Prime Minister Relief Fund Rs. 5,000
Q-9 X, who was an employee of Y Ltd. Delhi, furnishes the following
particulars regarding his income:
Basic Salary Rs. 5,000 p.m.
Dearness Allowance Rs. 800 p.m.
House Rent Allowance Rs. 1,000 p.m.
Rent Paid by X Rs. 1,200 p.m.
He retired from service on 1st January of the previous year after completing 25 years of service with the company. The company paid him Rs. 84,000 as gratuity, Rs. 2,40,000 (including Rs. 80,000 as interest) from unrecognized provident fund, and pension @ Rs. 1,500 p.m. He got half the pension commuted on 1st February of Previous Year and received Rs. 75,000. The assessee’s average monthly salary
for the last ten months was Rs. 5,000. One half of the provident fund account balance represents employer’s contribution and interest thereon. Salary and pension become due to the last day of each month.
During the year, he contributed Rs. 7,500 towards his provident fund. The employer also contributed similar amount. He also paid Rs. 5,000 as insurance premium on the policy of his wife and purchased infrastructure company bonds worth Rs. 20,000.
You are required to calculate gross salary, net salary and gross total income along with the qualifying amount for deduction u/s 80.
Q-10 Compute total income of X, who is working as executive in a company at Delhi, on the basis of the following information:
Basic Salary Rs. 10,000 per month
Dearness allowance Rs. 5,000 per month
Education allowance for one child Rs. 300 per month
Entertainment allowance Rs. 1,000 per month
House Rent allowance Rs. 3,000 per month
Actual Rent paid by him Rs. 3,500 per month
Bonus two month’s basic salary. The company provides 1.6 Ltr. Car along with driver for official and personal use both. The company provides services of sweeper and cook, who are paid salary Rs. 500 per month and Rs. 1,000 per month respectively. Contribution in recognized provident fund @ 15% of basic salary by X and his employer, both. Interest from fixed deposit in bank Rs. 8,000 and interest from Government securities Rs. 6,000. He donated Rs. 5,000 in
National Defence Fund.
Mr. Raghavan is nearing retirement and looking forward to the ways of regular income to ensure smooth funds after retirement. At present, he has Rs 4 lakh investible surplus through which he desires to earn the required returns. In addition to this, he is insured with a term-plan and has other investments, which would give him returns from time to time. Here, the main concern of Raghavan is liquidity and capital preservation; hence, he should not go for aggressive money-market schemes.
With conservative approach, he has two options to choose from:
Investment in non-cumulative Fixed Deposits (FDs) and to withdraw monthly interest.
Investment in other monthly income schemes to earn monthly returns.
Mary has three children, two of whom attend secondary school. Her youngest child is five years old. She is getting a One-Parent Family Payment and was recently offered work part-time. If she take the job, she will work three days each week and earn €300. Mary wants to take the job as all of her children are now in school but she knows her One-Parent Family Payment will be affected.Would Mary be better off financially if she takes the job offer? She has lived in her home for 20 years and has a comparatively small mortgage. She gets a weekly maintenance payment of €80 for her mortgage costs which does not affect her One-Parent Family Payment. Her oldest daughter has a part-time job in a local shop.
Weekly net income from employment (See note 1) €300.00
Add Weekly net income from self-employment €0.00
Add Social welfare payments (See note 2) €207.40
Add Income from occupational pensions €0.00
Add Maintenance received €80.00
Total income €587.40
The Family Income Supplement (FIS) maximum income limit for a family with three children is €703. The difference between €703 and €587.40 is €115.60. 60% of the difference €115.60 is €69.36.
Mary will get a FIS payment of €69.36 each week.
Her current income is €357.40.
If she takes the job her total income including FIS will be €656.76
Mary’s net income from employment is assessed for FIS, however her daughter’s income is not assessed because she is under 22 years of age and in full-time education.
If Mary gets €300 from employment, her One-Parent Family Payment will be reduced to €118. She will also get €29.80 for each child.
George is a 43-year-old engineering professional at a large manufacturing company with an annual salary of $120,000. George regularly earns a bonus based on company results, which adds about $40,000, on average, to his total income each year. His company-paid group disability plan covers 50% of George’s salary – but all benefit payments are taxable as income and the plan does not cover his bonus (a significant portion of his annual income). When George investigates the group LTD plan, he also discovers that the coverage contains an Any Occupation definition of disability, which means George’s benefit payments will end after just 12 months if he is able to perform any job. More importantly, George is planning to leave his company within the next two years to begin his own firm, at which time he will automatically lose his company coverage.George decides to buy the Engineers Canada-sponsored Disability Income Replacement Plan to ensure that he has at least $5,000 a month to cover his core living expenses. (The Plan's income replacement formula would allow him to purchase up to $6,000 per month based on his total pre-disability income of $160,000). The following table illustrates how the Engineers Canada offset works with George’s company plan to provide adequate benefit coverage. This example assumes that benefit payments under both plans begin after three months of disability and that the any-occupation provision under the group plan ends after 12 months.
During the last decades, agriculture in many Latin American countries has followed a path of intensification and specialisation of production systems in response to decreasing economic returns. This process has expelled many farmers and their families from agricultural production and rural areas and it has endangered the maintenance of natural resources such as the soil, water reserves and bio-diversity. Over-exploitation and/or pollution of water resources, soil erosion, loss of nutrients and soil organic matter, increasing impact of weeds and pests in crop yields are common problems in Latin American agriculture. Simultaneously, sources of off farm income or the demand of labour from others sectors of the economy are not enough to compensate the decreasing income of rural families.
The path followed by the Uruguayan vegetable production sector during the last 25 years is not an exception from the above described process. From 1990 to 1998 vegetable production increased by 24%, crop yields increased by 29% and cropped area decreased by 9% (DIEAPREDEG, 1999). Simultaneously, prices of vegetable products from 1992 to 2001 decreased by 34% (constant prices, base year 1992, CAMM, 2002) and 15% more from 2001 to 2004 (constant prices, base year 1996, CAMM, 2005). The South of Uruguay (Departments of Canelones, Montevideo and South East of San José) has the highest concentration in the country of small or family farms (farms where most of the labour force is contributed by the farmer and his/her family). Around 88% of the farms with vegetable production as main source of income are family farms (Tommasino and Bruno, 2005). Between 1990 and 2000 the number of vegetable farms decreased by 20% (DIEA, 2001), and those who stayed in business had to produce more, cheaper and better quality to maintain their family income.
The strategy followed by most farmers was to intensify and specialise their production systems. In the South of Uruguay the average vegetable cropped area per farm increased, while the average total area per vegetable farm stayed approximately the same. The average number of crops per farm also decreased. The observed increase in crop yields was explained by increasing use of irrigation, external inputs (fertilizers, biocides and energy), and higher quality seeds (Aldabe, 2005). The intensification strategy put more pressure in already deteriorated soils and on limiting farm resources. Increasing the crop area and narrowing the crop types without an adequate planning troubled farm operational functioning causing inefficient use of production resources, higher dependence on external inputs and higher impact on the environment.
Consequently, the sustainability in the long term of most of the family farms in South Uruguay is threaten by incomes not enough to cover maintenance of the family and production infrastructure, and/or continued deterioration of the natural resource base. A basic assumption of this project is that the sustainability problems described above cannot be solved by isolated adjustments or modifications in some system components such us pests management or soil tillage. The relevance of the changes occurring in the socio-economic environment and in the quality and availability of production resources demand the adaptation of the farm systems as a whole. Such a re-design of farm systems at the strategic level could be achieved by a participatory, interdisciplinary, systems approach. Involvement of the main stakeholders is particularly important since any intentional change in production systems is always a result of changes in human conduct and therefore it requires an individual and collective learning process (Leeuwis, 1999). Moreover, solutions to problems of this complexity do not come as 'take it or leave it' validated packages, they need to be designed within its context of application with the direct involvement of farmers at all stages of the process, from diagnosis to dissemination (Leeuwis, 1999; Masera et al., 2000). This is the only way to ensure relevance, applicability and adoption of the innovations.
Margery – single, age 80.
Margery says her pension credit helps her get out and about. She suffers from a range of health problems including osteoporosis and angina. This means she finds it difficult to get about, even on public transport.
Because of this she uses taxis to do supermarket shopping and go to meetings of groups she is a member of.
"It is brilliant and I put the money aside for my taxis, which I have to use to do my shopping and to get about to other places. They can cost about £10-12 a time and if I wasn’t able to use taxis I wouldn’t be able to get to the supermarket because I find it hard to walk long distances to the bus stop and can’t carry the bags.
"I couldn’t live without that extra money. I would just have to stay indoors and wouldn’t be able to go outside".
"I have told a lot of people about it and tried to get them to take it up. A lot of people view it as begging, but it is not. They are entitled to it".
Wilma and Winston – a couple aged 65 and 67.
Wilma and Winston own their home. Their total income from their State Pension and work pensions is £230 a week. They have £10,000 in savings. Their bill for Council Tax is £823 a year.
Wilma and Winston can cut their bill for Council Tax by around £470 a year because they can get Council Tax Benefit. They are also entitled to a small amount of Pension Credit.
We will also backdate their claim for three months, so they will get three months extra money.
Leslie – single, age 85.
Leslie was living off less than £100 a week, and risked losing his home. But, after encouragement from his daughter, he found out about Pension Credit and realised he could be entitled to thousands of pounds.
Since claiming Pension Credit, Leslie has now more than doubled his weekly income and got a back payment of £3,000. This greatly improved his standard of living.
Leslie, who worked part time until he was 85, said: "I really struggled on £90 a week. I had a bit of a nest egg, but that was rapidly decreasing as I spent money on just living life like I normally did.
Now getting £230 a week, the delighted war veteran has double-glazed his home, replaced an old boiler and treated the damp in his walls.
"I was never on the poverty line, but it was getting to the point that I was going to have to sell my house. Then my daughter got me to get in touch about Pension Credit.
"They were fantastic and told me about these pension credits I was entitled to. I got a back payment of £3,000, which I used to double-glaze my home, and it more than doubled my weekly income."
Rita – single, age 72.
Widow Rita, 72, from Peterborough, was surprised when she started getting Pension Credit four years ago when her husband died.
"I was surprised that I qualified for Pension Credit as I had £6,000 savings. I did not know how the system worked and I had always assumed that Pension Credit was out of the question if you had any savings. It was a real godsend as my savings were for a rainy day."
Denis – single, age 60
Denis was born on 7 July 1950. He reached the minimum Pension Credit qualifying age on 6 November 2010 at the age of 60 and four months. He was getting Income Support of £65.45 per week and had no other income.
When Denis he reached the minimum qualifying age for Pension Credit on 6 November 2010, he automatically moved on to Pension Credit. His total weekly income from Pension Credit is £132.60.
Jack – single, age 63
Jack is 63 and gave up full time work eight months ago. He lives alone in his own home and earns £85 a week from a part time job.
If Jack claims Pension Credit, we will ignore £5 of his earnings and only count the remaining £80 as income for Pension Credit purposes. Jack will get Guarantee Credit of £52.60, bringing his total income up to £137.60.
Jack cannot get Savings Credit as he is only 63.
Jackie – single, age 62.
Jackie is 62 and owns her own home. She gets State Pension of £105 a week and has no other income. Her savings are £5,000.
Jackie will get Guarantee Credit of £27.60 a week, bringing her total weekly income up to £132.60. We ignore her savings of £5,000 because they are below £10,000. Because Jackie is 62, she can only get Guarantee Credit. When she is 65, she may also get Savings Credit.
Because Jackie gets Guarantee Credit, she will get Council Tax Benefit and help with other things like rent.
Mary and Frank – couple, both 75.
Mary and Frank are both 75 and get £210.25 a week from:
basic State Pension (Mary) – £97.65
basic State Pension (Frank) – £58.60
personal pension (Mary) – £50.00
savings of £12,000 – £4.00
For any savings over £10,000, we assume there is £1 of income for every £500 of savings. In Mary and Frank’s case, this is assumed to be £4.
As Mary and Frank’s income is over £202.40, they cannot get Guarantee Credit, but they are entitled to £23.95 Savings Credit.
Mary and Frank will get Pension Credit of £23.95, bringing their weekly income to £234.20
Will come to know how to calculate taxable income and tax liability thereon as per income tax act 1961.
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