Interview Question: Income Tax

 Interview Questions (Continued...)

Income Tax

What is deferred tax asset, its effect in financial statements and journal entry?

• Deferred tax assets are items that may be used for tax relief purposes in the future. Usually, it means that your business has overpaid tax or has paid tax in advance, so it can expect to recoup that money later. This sometimes happens because of changes in tax rules that occur in the middle of the tax year.
• Journal Entries for Deferred Tax Assets. If a company has overpaid its tax or paid advance tax for a given financial period, then the excess tax paid is known as defer ed tax asset. Such taxes are recorded as an asset on the balance sheet and are eventually paid back to the Company or deducted from future taxes.

 

What is Commercial Tax?

• Commercial Tax, currently referred to as Goods and Services Tax (GST) in India, is a tax that is levied on locally manufactured and imported goods and services, and contributes to the GDP of the country. ... It is calculated incrementally, based on the appreciation or depreciation in the value of goods and service.

 

What is income tax?

• Income tax is a direct tax that a government levies on the income of its citizens. ... Income does not only mean money earned in the form of salary. It also includes income from house property, profits from business, gains from profession (such as bonus), capital gains income, and 'income from other sources'.

 

How income tax is calculate?

• Income tax is a tax charged on the annual income earned by an individual. The amount of tax paid will depend on how much money you earn as income over a financial year. ... 2.5 lakh p.a. The highest amount of tax an individual could pay is 30% of their income plus cess at 4% if their income is more than Rs. 10 lakh p.a.

 

For Individual tax payers (less than 60 years) old tax

Income Slab	Tax Rate
Up to Rs 2,50,000	No Tax
Rs 2,50,000-5,00,000	5%
Rs 5,00,000-Rs 10,00,000	20%
Above Rs 10,00,000	30%

 

Income Tax Slab	Income Tax Slab Rates for FY 2020-21 (New Regime Applicable for HUF and all Individuals)
₹0.0 – ₹2.5 lakh	NIL
₹2.5 lakh – ₹3.00 lakh	5% (tax rebate u/s 87a is available)
₹3.00 lakh – ₹5.00 lakh
₹5.00 lakh – ₹7.5 lakh	10%
₹7.5 lakh – ₹10.00 lakh	15%
₹10.00 lakh – ₹12.50 lakh	20%
₹12.5 lakh – ₹15.00 lakh	25%
> ₹15.00 lakh	30%

What is financial year?

• A Financial Year (FY) is the period between 1 April and 31 March – the year in which you earn an income.

What is accrued income?

• Accrued income is money that's been earned but has yet to be received. ... Individual companies can also generate income without actually receiving it, which is the basis of the accrual accounting system.

what is tax audit in india?

• A tax audit is an inspection under the Income Tax Act. It helps authorities ensure there are no tax discrepancies. Professional income over Rs.50 lakh necessitates tax audit. Not doing a tax audit can lead to penalties up to Rs.1.5 lakh.

What is tax refund?

• A tax refund is a reimbursement to a taxpayer of any excess amount paid to the federal government or a state government.

What is deferred tax?

• a deferred tax liability as being the amount of income tax payable in future periods in respect of taxable temporary differences. So, in simple terms, deferred tax is tax that is payable in the future.

deferred tax asset meaning

• Deferred tax assets are items that may be used for tax relief purposes in the future. Usually, it means that your business has overpaid tax or has paid tax in advance, so it can expect to recoup that money later. This sometimes happens because of changes in tax rules that occur in the middle of the tax year.

    luxury tax:

• A luxury tax is a sales or transfer tax imposed only on specific goods. · The products taxed are considered non-essential or are affordable only

     ad valorem tax:

• An ad valorem tax is a tax based on the assessed value of an item, such as real estate or personal property. The most common ad valorem taxes are property taxes levied on real estate. The Latin phrase ad valorem means "according to value." So all ad valorem taxes are based on the assessed value of the item being taxed.

    progressive tax meaning:

• a tax in which the rate of tax is higher on larger amounts of money: In a progressive tax system, rich people pay a higher percentage of their income as taxes than do poor people.

    Difference between company law and the income tax:

• Income tax rates are higher than companies act rates. Income tax depreciation is 50% if asset used for less than 180 days otherwise depreciation for full year. Companies act depreciation is proportionate to the period of use.

what is gst ?

• GST is known as the Goods and Services Tax. It is an indirect tax which has replaced many indirect taxes in India

which taxes will be subsumed in gst?

• Subsuming of State Value Added Tax/Sales Tax, Entertainment Tax (other than the tax levied by the local bodies), Central Sales Tax (levied by the Centre and collected by the States), Octroi and Entry tax, Purchase Tax, Luxury tax, and Taxes on lottery, betting and gambling;

which products are not included in gst?

• Fresh fruits, Fresh milk, Curd, Bread, etc. Exports and Supplies made to SEZ or SEZ Developers, of both goods and services. Grains, salt, Jaggery, etc. Alcohol used for human consumption, Natural gas, Petrol and its products, electricity, etc

The 4 types of GST in India are:

• SGST (State Goods and Services Tax)
• CGST (Central Goods and Services Tax)
• IGST (Integrated Goods and Services Tax)
• UGST (Union Territory Goods and Services Tax)

 

Advantages of GST

• GST eliminates the cascading effect of tax. ...
• Higher threshold for registration. ...
• Composition scheme for small businesses. ...
• Simple and easy online procedure. ...
• The number of compliances is lesser. ...
• Defined treatment for E-commerce operators. ...
• Improved efficiency of logistics. ...
• Unorganized sector is regulated under GST.

 

Registration limit in gst

A business whose aggregate turnover in a financial year exceeds Rs 20 lakhs has to mandatorily register under Goods and Services Tax. This limit is set at Rs 10 lakhs for North Eastern and hilly states flagged as special category states. Also, the definition of taxable turnover has been changed to aggregate turnover.

 

Types of Invoices in GST

1. Tax Invoice.
2. Bill of Supply.
3. Receipt Voucher.
4. Refund Voucher.
5. Payment Voucher.
6. Debit Note and Credit Note.
7. ISD Invoice.
8. Delivery Challan.

Accrued income with example:

• Accrued income is money that's been earned but has yet to be received. Examples of Accrued Revenue. The most common example of accrued revenue is the interest income (earned on investments but not yet received) and accounts receivables (the amount due to a business for unpaid goods or services.)

Capital income:

•  Capital income is income that comes from capital, which is to say, comes from wealth itself, rather than any specific production or direct work. Examples are stock dividends or any sort of capital gains, as well as income an owner gets from a business he owns but not from the work he does there.

Dissolution of firm

What is dissolution of firm?

• Dissolution of a firm refers to the dissolution of an existing partnership which owns and controls a firm or an organisation. ... Retirement of one or more existing partners of a firm. Demise of one of the partners. A partner's insolvency due to incompetence to contract. Completion of a specific partnership venture.

What is TDS and why it is deducted?

• TDS stands for tax deducted at source. As per the Income Tax Act, any company or person making a payment is required to deduct tax at the source if the payment exceeds certain threshold limits. TDS has to be deducted at the rates prescribed by the tax department.

• Taxpayers must disclose exempt income in the schedule called 'Exempt Income, “which is automatically excluded while computation of final tax liability", said Malhotra. Exempt income of minor children clubbed with parent also needs to be reported in ITR.

Which income are exempted from income tax?

• House Rent Allowance. Allowance on transportation, children's education, subsidy on hostel fee. Exemption on Housing Loan. Income defined as per Section 10, Section 54 of the Income Tax Act, 1961.

Documents to be enclosed along with return of income?

• Generally, the required document is a copy of the PAN card, a Copy of the AADHAR card, a Bank Statement / Bank passbook, Income Tax Login id & password. Other than that it depends on which tax you leviable to pay. Check here the detail about the documents needed for filing Income Tax Returns in India.

    Payroll :

• Payroll is the compensation a business must pay to its employees for a set period or on a given date. It is usually managed by the accounting or human resources department of a company. Small-business payrolls may be handled directly by the owner or an associate.

    Gratuity:

• Gratuity is a lump sum amount paid by the employer to the employee as a token of appreciation for the services they have provided towards the company.

The formula is: (15 * Your last drawn salary * the working tenure) / 30. For example, you have a basic salary of Rs 30,000. You have rendered continuous service of 7 years and the employer is not covered under the Gratuity Act. Gratuity Amount = (15 * 30,000 * 7) / 30 = Rs 1,05,000.

    Dumb money:

• Dumb money is a term for capital managed by individual retail investors. This is a neologism created by the financial media as a contrast with smart money, capital managed by large institutions. (when new investor comes in the market with the flow of money)

 

What do you understand by risk and control:

• Risk control is the set of methods by which firms evaluate potential losses and take action to reduce or eliminate such threats. ... Risk control also implements proactive changes to reduce risk in these areas. Risk control thus helps companies limit lost assets and income.

Progressive and regressive tax:

• A progressive tax is a tax where the tax rate increases with increase in the taxpayer's income. ... On the other hand, in the case of regressive tax, tax rate decreases with increase in income. Tax burden of the taxpayer also goes up when the tax is progressive.

Dual aspect concept in accounting

• The dual aspect concept states that every business transaction requires recordation in two different accounts. This concept is the basis of double entry accounting, which is required by all accounting frameworks in order to produce reliable financial statements.

• There are four methods for depreciation: straight line, declining balance, sum-of-the-years' digits, and units of production.