Accounts Notes: Accounts notes

Wednesday 16 March 2011

Accounts notes

1. Agricultural income: Any income which you receive as income from any agricultural activity is deemed as not included in total income. If your father is into agriculture and he gives you a part of the income as a gift, then you don’t need to pay tax on it, provided, your father files his tax returns.

2. Share of Income from Partnership Firm: If you receive any income for being a partner of a firm which has already been assessed separately, then the income need not be included in total income. Thus any share in the profits that you have in a firm according to the partnership deed is not taxable.

3. Travel concession/assistance for Salaried Persons: Any monies that you receive from your company for the purpose of travel to any place in India along with your family for the purpose of leave. The claim can be made two times in a bucket of 4 years.

4. Prize Money up to Rs 5,000: An amount of up to Rs 5,000 which you receive for any reason — other than as prize money and is not a recurring amount — can be excluded from your total income. It seems to be a very small amount, but sometimes this could be the difference between being in a higher slab and a lower slab.

5. Retirement/death gratuity: Any payment received under a pension or death-cum-retirement gratuity scheme by an individual or his widow, children or dependents.

The gratuity should not be more than the number of years in service multiplied by half month’s salary based on a ten-month average. For example, if the average salary for the previous ten months prior to receiving gratuity is 10,000 and years in service is 15, then 15×5,000=75,000 will be not included in total income.

6. Leave salary: Any cash amount received as compensation for earned leave which is encashed at the time of retirement. (This applies only to employees of central/state government).

7. Retrenchment: Any compensation received by a workman due to the closure of his company or change in the management of the company if new terms are less favourable than what was previously applicable.

8. Voluntary retirement: Any amount up to a maximum of Rs 500,000 paid at the time of voluntary retirement in accordance with and scheme of voluntary retirement of the company. But, the company paying the VRS should have a framework for VRS as prescribed by the government.

9. Life insurance policy: Any amount received as benefit from a life insurance policy, including bonus payment, is not included in total income. The only exception is the amounts paid as part of keyman policies.

10. Provident Fund: All payment which is received from a provident fund to which the PF Act applies or any PF fund of the government is not included in total income.

11. Superannuation: Any payment made from a superannuation fund on the death of the beneficiary or as a refund of contributions or if the employee becomes incapacitated before retirement.

12. Payment of rent: Any allowance paid by an employer to an employee to meet expenditure actually incurred on the payment of rent for accommodation. But this is not allowed if the house is owned by the employee or he has not incurred the rental.

13. Income from government securities: Any earnings from interest, premium on redemption or other payment on securities, bonds, annuity certificates, savings certificates and other instruments issued by the central government and also deposits taken by the central government.

In case of Non-Residents, if the bond have come to you by virtue of being a nominee or survivor of the Non-Resident, or if the bonds have been gifted to you by an NRI — who purchased the instrument in foreign exchange and if the principal and interest will not be taken out of India by the recipient of the gift, the amounts will not be added to income.

14. Scholarships for education are not included in total income.

15. Awards and rewards: All payments receive in cash or kind as an award given by the central or state governments or by a body recognised by the central government to give such awards will not be included in the total income.

16. Relief funds: Any amounts which are received by an individual as part of the Prime Minister’s National Relief Fund or the promotion of folk art fund or students fund or foundation for communal harmony will be treated as not included in income.