TAxable Income

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Department of Commerce Com 4132 –Business Taxation

Taxable Income
Hand out – 06 Date 14.08.2010

Lecturer: Mr. S.Ramesh
Objectives
• • • Define the Taxable Income Describe the Tax Free Allowance & Qualifying Payments Limits on the Allowability of Qualifying Payments

Computation of Taxable Income
Taxable Income is the residue of assessable income of a person after deducting the following allowances. 1. Resident individual and Charitable institution are entitled to deduct • • A tax free allowance An allowance for qualifying payments

2. Other persons (i.e. except resident individual and charitable institutions) are entitled to deduct allowances for qualifying payments only. The deduction from assessable income could be done in the following orders of priority to obtain the maximum benefit to the taxpayer. • • • Tax Free allowance Year of Assessment 2000 / 2001 to 2001 / 2002 2002 / 2003 to 2003 / 2004 2004 / 2005 onwards Tax Free Allowance Rs. 144,000 Rs. 240,000 Rs. 300,000 Relevant Act. 38 of 2000 10 of 2002 12 of 2004 Tax free allowance Qualifying payments that could not be carried forward. Qualifying payments which could be carried forward

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Qualifying payments (Persons other than companies)
Qualifying payments are deducted subject to certain limits. A. Donations in money to an approved charity (disallowed goods) B. A specified institution (disallowed goods) C. Donations to the government, Local authority, higher educational institution, Fund establish by the government, Fund establish by the Provincial Council & approved by the minister.(Money or Otherwise) D. Expenditure incurred on project included in a development plan of the government.( Approved By the Minister). E. Any amount paid by an individual as a contribution to an approved provident fund for self employed person. F. Contribution to an approved provident fund G. Premia on a life insurance policy – (at least 3 years policy) and premia on any medical insurance policy. H. Any expenditure on or after 1/04/2002 by an individual in either the construction or purchase of the first house after 1/42001(Other than I). I. Expenditure incurred on or after1/4/2002 by an individual in the repayment of capital on any loan obtained from the government or banking institution, provincial fund, local authority or from any other institution approved by the minister of housing(Approved Housing Loan)

Limits on the allowability of qualifying payments
• • In the case of C, the entire amount can be allowed and balance carried forward. In the case of B&E, the maximum amount allowable is restricted to the lower of Rs. 25,000 or 1 of assessable income.

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In the case of A, F& G, the maximum amount allowable is restricted to the lower of Rs. 75,000 or 1 of assessable income.

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In the case of H & I, the maximum amount allowable is restricted to the lower of Rs. 100,000 or 1 of assessable income.

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• •

In the case of D should not exceed Rs.25, 000 & can be carried forward. Further in the case of H, the expenditure can be apportioned over a period of nine years immediately succeeding the year of assessment in which such expenditure is incurred.



C&D without any restriction.

Example: Details relevant to Mr. Silva for 2008/2009
Salary and allowance Provident fund contribution National Defense Fund Approved Charity YMBA Life insurance premia Medical insurance premia Expenditure on house construction Loan from bank to purchase car – Capital Interest 1,000,000 60,000 30,000 20,000 21,000 6,000 900,000 15,000 10,000

Compute the taxable income. 1. Assessable income of Mr. X for the year of assessment 2008/2009 is Rs. 250,000. He has donated Rs. 100,000 to the Government & Rs. 20,000 to an approved charity during the year of assessment. Compute the taxable income. 2. Mr. Y’s assessable income for the year of assessment 2008/2009 is Rs. 600,000. Qualifying payments made by him during this year of assessment are as follows. Donation to Government Donations to an approved charity Compute the taxable income. Rs.500,000 Rs. 65,000

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3. Mr.Siva a government pensioner (retired in October, 2008) is employed in a Mercantile Firm. His income fore the year ended 31.03.2009 is as follows. Government pension Commuted pension Salary from the Mercantile firm NSB- Interest- Own[10% tax has not been deducted] - son’s under 18 years Net rent income-after deducting rates & Repair Wife’s income from tea Estate Agricultural income DividendRs.10,000 WHT Rs. 1,000 Total Rs.’000’ 110 250 380 5 3 6 15 50 9 830

i) Mr siva has paid a sum of Rs. 1,000 during the year as interest to a bank on a housing loan. ii) Contributed to an approved Provident Fund rs.30,400 iii) Donated to the Colombo City Development Fund Rs.2000 iv) Donated to tower Hall Theater Foundation Rs.10,000 v) Donated to Sri Lanka Cancer Society Rs.25,000. Compute the taxable income.

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