Capital Gain and Income
INTRODUCTION
However, every income is taxable under income tax law, whether it is received in cash or in kind, whether it is capital or revenue income, but still some incomes are given exemption from tax. In this lesson we will study those incomes which are exempt from tax.
Here are some of the important items of income, which are fully exempt from income tax and which can be utilised by a resident individual Indian assessee for the purpose of tax planning.
➢ AGRICULTURAL INCOME:
Under the provisions of Section 10(1) of the Income Tax Act, agricultural income is fully exempt from income tax. However, for individuals or HUFs when agricultural income is in excess of Rs. 5,000, it is aggregated with the total income for the purposes of computing tax on the total income in a manner which results into “no” tax on agricultural income but an increased income tax on the other income. Agricultural income which fulfils the above conditions is completely exempt from tax. The manner of calculating tax on total income and agricultural income is explained in Illustration.
➢ RECEIPTS FROM HUF (HINDU UNDIVIDED FAMILY):
Any sum received by an individual as a member of a Hindu Undivided Family, where the said sum has been paid out of the income of the family, or, in the case of an impartible estate, where such sum has been paid out of the income of the estate belonging to the family, is completely exempt from income tax in the hands of an individual member of the family under Section 10(2).
Illustration 3.1 - X, an individual, has personal income of Rs. 56,000 for the previous year 2005-06. He is also a member of a Hindu undivided family, which has an income of Rs. 1, 08,000 for the previous year 2005-06. Out of income of the family, X gets Rs. 12,000, being his share of income. Rs. 12,000 will be exempt in the hands of X by virtue of section 10(2). The position will remain the same whether (or not) the family is chargeable to tax. X
However, every income is taxable under income tax law, whether it is received in cash or in kind, whether it is capital or revenue income, but still some incomes are given exemption from tax. In this lesson we will study those incomes which are exempt from tax.
Here are some of the important items of income, which are fully exempt from income tax and which can be utilised by a resident individual Indian assessee for the purpose of tax planning.
➢ AGRICULTURAL INCOME:
Under the provisions of Section 10(1) of the Income Tax Act, agricultural income is fully exempt from income tax. However, for individuals or HUFs when agricultural income is in excess of Rs. 5,000, it is aggregated with the total income for the purposes of computing tax on the total income in a manner which results into “no” tax on agricultural income but an increased income tax on the other income. Agricultural income which fulfils the above conditions is completely exempt from tax. The manner of calculating tax on total income and agricultural income is explained in Illustration.
➢ RECEIPTS FROM HUF (HINDU UNDIVIDED FAMILY):
Any sum received by an individual as a member of a Hindu Undivided Family, where the said sum has been paid out of the income of the family, or, in the case of an impartible estate, where such sum has been paid out of the income of the estate belonging to the family, is completely exempt from income tax in the hands of an individual member of the family under Section 10(2).
Illustration 3.1 - X, an individual, has personal income of Rs. 56,000 for the previous year 2005-06. He is also a member of a Hindu undivided family, which has an income of Rs. 1, 08,000 for the previous year 2005-06. Out of income of the family, X gets Rs. 12,000, being his share of income. Rs. 12,000 will be exempt in the hands of X by virtue of section 10(2). The position will remain the same whether (or not) the family is chargeable to tax. X