Gross Total Income, Marginal Rate of Tax & PAN - Income Tax Laws | Income Tax Laws - B Com PDF Download

GROSS TOTAL INCOME (GTI) & TOTAL INCOME

U/s 14 the term “Gross Total Income”  [ GTI ] means aggregate of incomes computed under the following five heads :

• Income under the head “Salaries”

• Income under the head “ House Property”

• Income under the head “Profit and Gains of Business or Profession”.

• Income under the head “Capital Gain”.

• Income under the head “ Other Sources”.

After aggregating income under various heads, losses are adjusted and the resultant figure is called  “ Gross Total Income” [ GTI ]

From Gross Total Income , Deductions u/s 80 are allowed. The resultant figure is called “Total Income “ on which Rates of Taxes are applicable.

Marginal Tax Rate is the tax rate that is applicable for each tax bracket of a taxpayer’s income or other taxable income for which he or she qualifies. It is the percentage taken from the taxpayer’s next rupee of taxable income over and above a set income threshold.

As an individual’s income rises so will his or her marginal tax rate. The main objective of marginal tax rates is to tax individuals on the basis of what they earn, where people with lower income are taxed at lower rates as compared to people with higher income.

Marginal Tax Rates in India:

According to the World Bank, the highest marginal tax rate (individual rate %) in India was last measured at 30.9% in 2013.

The corporate marginal tax rates in India from 2006 - 2015 are as follows:

2006 - 33.66%

2007 - 33.99%

2008 - 33.99%

2009 - 33.99%

2010 - 33.99%

2011 - 32.44%

2012 - 32.45%

2013 - 33.99%

2014 - 33.99%

2015 - 34.61%

Importance of Marginal Tax Rate:

Marginal tax rates are important when it comes to financial planning. For taxpayers, knowing about marginal tax rates is necessary in order to ascertain what amount of their raises or bonuses they get to keep after deduction of taxes. It is also helps taxpayers determine how much they can contribute to their retirement accounts, which yield them tax benefits.

Maximum Marginal Tax Rate:

In certain cases, like in the case of a Trust of an Association of Person (AOP), income is required to be taxed at the maximum marginal rate, which means there will be no exception limit or slab rate.

As per Section 2(29C) of the Income Tax Act, 1961, the term “maximum marginal rate” means the rate of income-tax (including surcharge on income-tax, if any) applicable in relation to the highest slab of income in the case of an individual, association of persons or body of individuals as specified in the Finance Act of the relevant year.

Assessment of Association of Persons (AOP) or Body of Individuals (BOI) with regards to Marginal Tax Rate:

The assessment of the members of AOP or BOI depends on whether they are eligible to be charged tax at the maximum marginal rate or not at all.

If an AOP or BOI is chargeable to tax at a maximum marginal rate or any higher rate, the share of profit of a member is exempt from tax. Therefore, it is not to be included in the total income of the member as per Section 86(a)

The rate of 30.9% charged is the maximum marginal rate of tax and if such rate is applied then the share of profit of the member is exempt from tax.

Permanent Account number(PAN)

Permanent Account Number or PAN is a ten-digit unique alphanumeric number issued by the Income Tax Department. Out of the first five characters, the first three characters represent the alphabetic series running from AAA to ZZZ. The fourth character of PAN represents the status of the PAN holder. “P” stands for Individual “C” stands for Company “H” stands for Hindu Undivided Family (HUF),”G” stands for Government Agency “L” stands for Local Authority “E” stands for Limited Liability Partnership “F” stands for Firm “T” stands for Trust etc.

PAN Card can be obtained by Indian nationals, entities, foreign nationals and entities. The Income Tax Act permits one person to have only one PAN.

Fifth character of PAN represents the first character of the PAN holder’s last name/surname in case of an individual. In case of non-individual PAN holders fifth character represents the first character of PAN holder’s name.

Utility of PAN

PAN enables the department (IT) to identify/ link all transactions of the PAN holder with the department. These transactions include tax payments, TDS/TCS credits, returns of income, specified transactions, correspondence etc, and so on. It facilitates easy retrieval of information of PAN holder and matching of various investments, borrowings and other business activities of PAN holder.

Several transactions need mandatory PAN quoting for every person except the Central Government, the State Governments and the Consular Offices. This include: A time deposit of amount exceeding Rs. 50,000 or aggregating to more than Rs. 5 lakh during a financial year with – (i) a banking company or a co-operative bank (ii) a Post Office; (iii) a Nidhi referred to in section 406 of the Companies Act, 2013 or (iv) a non-banking financial company. Sale/ purchase of immovable properties exceeding Rs.10 lakh need PAN. There are similar requirements for various transactions and especially after demonetisation, PAN has emerged as the powerful financial identity.

Minors can also obtain PAN card. If minors have income it should be added to the income of his parent/guardian. Similarly, minor person can quote PAN of his father or mother or guardian provided he does not have any income chargeable to income-tax.

PAN as the Common Business Identification Number

PAN has now taken on the role of “identifier” beyond the Income tax department as it is now required for various activities like opening of bank account, opening of demat accounts, obtaining registration for Service Tax, Sales Tax / VAT, Excise registration etc. PAN is leveraged to become Common Business Identification Number (CBIN) or simply Business Identification Number (BIN) for providing registration to a number of government departments and services.