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Income Tax Introduction
Income Tax Introduction
DEFINITION
Income tax is Annual tax levied by the Federal government, moststates, and
some local governments, on an individual's or corporation's net profit.
INTRODUCTION:
The direct tax which is paid by individual to the Central Government of India is known as
Income Tax. It is imposed on our income and plays a vital role in the economic growth &
stability of our country. For years the Government is generating revenue through this tax
system.
The word 'Tax' originated from the 'Taxation.' which mean 'Estimate.' Hence, 'Income
Tax' mean 'Income Estimate,' which helps the government to know the actual economic
strength of a person. It is also a way to set up an economic standard for general people. It
helps the Government to know the distribution of money among country's people.
Income Tax has been in force in different forms since years. If we go through the history
of India, we get relevant information regarding the taxation system of India. In ancient
history, it is mentioned about such system which was imposed on the income,
expenditure and other subject. Even information of the same is given in Manu Smriti and
Arthasatra which confirms its existence at that time.
In modern India, Income Tax came into existence in 1860 with the implementation of
first Income Tax Act. After implementation of this Act, people became aware of the
actual meaning of Income Tax. This act was in force for first five years. After this, in
1865, second Act came into force. There were major changes in this Act relative to the
first. It proved itself as a good factor for the growth of our economy. With this Act a new
concept of Agriculture Income came into existence.
After this, different new Act was also implemented. The most important of them is the
Income Tax Act, 1961. According to ruling of Income Tax Act, 1961, any person whose
salary from any source of income is more than the maximum limit of unchangeable
amount will be liable to pay Income Tax. There is also a provision of deduction and
exemptions in Income Tax, depending upon the type of assessee, source of income,
residential status and investment in saving schemes. Income tax rates are a matter of
change, which is declared by Ministry of Finance, Government of India regularly, usually
on annual basis.
Income Tax Refund
Indian Tax payers can now heave a sigh of relief as tracking down their refund status has
become easy. The tax authorities have simplified the process of tracking your refund
cheque status. If you are a taxpayer looking for some information on your tax refund
status you can simply track the exact status of your refund online.
Heads of Income
Under chapter 4 of Income Tax Act, 1961 (Section 14), income of a person is calculated
under various defined heads of income. The total income is first assessed under heads of
income and then it is charged for Income Tax as under rules of Income Tax Act.
According to Section 14 of Income Tax Act, 1961, there are following heads of income
under which total income of a person is calculated:
Salary
What is Salary?
Income under heads of salary is defined as remuneration received by an individual for
services rendered by him to undertake a contract whether it is expressed or implied.
According to Income Tax Act there are following conditions where all such remuneration
are chargeable to income tax:
When due from the former employer or present employer in the previous year,
whether paid or not
When paid or allowed in the previous year, by or on behalf of a former employer
or present employer, though not due or before it becomes due.
When arrears of salary is paid in the previous year by or on behalf of a former
employer or present employer, if not charged to tax in the period to which it
relates.
What is Annuity?
It is an annual income received by the employee from his employer. It may be paid by the
employer as voluntarily or on account of contractual agreement. It is not taxable until the
right to receive the same arises. Under section 56, Income Tax Act, 1961 other annuities
come under a will or granted by a life insurance company or accruing as a result of
contract which comes as income under from other sources.
What is Gratuity?
It is salary received by an individual paid by the employee at the time of his retirement or
by his legal heir in the case of death of the employee.
What is Allowance?
It is the amount received by an individual paid by his/her employer in addition to salary.
Under section 15 of the Income Tax Act, 1961 these allowance are taxable excluding few
condition where they are entitled of deduction/ exemptions.
Under Income Tax Act following types of allowance are defined
House Rent Allowance:
Under sections 10(13A) of Income Tax Act, 1961 allowance is defined as an amount
received by an employee paid by his/ her employer as a rent of his/her house. It is a
taxable income. There is no exemption in tax if he is living in his own house or house for
which he is not paying rent. There are following types of amount which are exempted
from tax:
Actual house rent paid by that individual
Rent paid for the accommodation over 10% of the salary
50% of the salary if house is placed at Delhi, Mumbai, Kolkata, Chennai or 40%
of the salary in it is placed in any other city
Entertainment Allowance:
It is the amount paid by employer for availing entertainment services. Under section
16(ii) of Income Tax Act, 1961 it is entitled to deduction in tax from is salary. But in this
case deduction is given to his gross salary which also includes entertainment allowance.
Deduction in tax against this allowance can be divided into two parts :
In case of Government employee entitled to minimum deduction of
Entertainment allowance received
20% of basic salary excluding any other allowance
Rs. 5000
What is Perquisite?
Under section 17(2) of Income Tax Act, 1961 perquisite is defined as:
Amount paid for the rent-free accommodation provided to the assessee by his
employer
Any concession in the matter of rent respecting any accommodation provided to
the assessee by his employer
Any benefit or amenity granted or provided free of cost or at concessional rate in
any of the following cases:
1. By a company to an employee, who is a director thereof
2. By a company to an employee being a person who has a substantial
interest in the company
3. By any employer to an employee whose income under the head 'Salaries'
exceeds Rs.24000 excluding the value of non monetary benefits or
amenities
4. Any sum paid by the employer in respect of any obligation which, but for
such payment, would have been payable by the assessee
5. Any sum payable by the employer whether directly or through a fund,
other than a recognised provident fund or EPF, to effect an assurance on
the life of the assessee or to effect a contract for an annuity
House Property
What Is Heads of House Property?
According to Chapter 4, Section 22 - 27 of Income Tax Act, 1961 there is a provision of
income under head of house property. In every section from 22-27 there are detail
specification of house property income. It is defined as income earned by a person
through his house or land.
3. The assessee occupies more than one house for his residence, the above
exemption is applicable only to one such house at the option of the assessee. The
annual value of the other house or houses shall be computed as if the house or
houses are let
4. In case where the assessee has only one residential house but it cannot be
occupied by the owner by reason of that owing to his employment, business or
profession carried out on at any other place, he has to reside at that other place in
a building not belonging to him, the annual value of such house shall be taken to
be nil if the house is not actually let and no other benefit is derived by the owner
from such house. The assessee cannot claim any deduction in such case as
allowable under section 24 of the Act except for interest on borrowed capital
subject to a maximum of Rs. 15,000/-
Profits and gains of assessee from any business or profession during assessment
year
Any payment or compensation due or received by a person for his services to
organization as a part of his business
Making profit in trade Income of professional or organization against services
provided by that professional/ organization
Profits on sale of a license granted under the Imports (Control) Order, 1955,
(EXIM control Act, 1947)
Cash received or due by any person against exports under government schemes
Any benefit whether it is not in cash coming from business/ profession
Any profit, salary, bonus or commission received by company partners
Capital Gains
Conversion of capital asset by its owner as stock in trade of his business, it may
also be a term of transfer
Transfer of immovable property under Section 53A of Transfer of Property Act,
1882
Any transaction by which an assessee become enable to act as a member of
cooperative society
Any transaction by which an assessee acquire shares in cooperative society
Other Sources
Every type of income comes under a specified heads. But there are few incomes, which
don't come under any of following heads:
Salary
House Property
Profit In Business/ Profession
Capital Gains
So under Section 56(2) of Income Tax Act,1962 all such income comes in this heads of
income. There are following incomes which are taxed under this heads
Income coming as a dividend paid by a company to an assessee
Income coming from winning in lottery, crossword puzzles, races, card games,
gambling or other such sports
Income coming as an amount received by assessee from his employer as a fund
for welfare of employee
Income as an interest on securities
Income coming by letting on hire machinery, plant, furniture, building or other
goods Income coming from insurance policy
Income Tax Return is an important part of Income Tax. It is the way by which an assessee
process for paying his tax to Income Tax Department. As per the provisions of Income
Tax Act, 1961, filing of Income Tax return is a legal obligation of every Individual whose
income exceeds the maximum limit of non-taxable income for the full financial year i.e.
from 01 April to March 31 of the following year, for example for the year 2007-2008
(which is also called the Assessment Year) the period is 01 April 2007 to 31 March 2008.
In case of salaried class assessee the information about the income in the particular
financial year supported with the form 16 (the certificate for tax deducted at source),
which is issued by the employer at the end of the financial year.
Transforming itself with the changing times, the Income Tax Department of India has
launched an easy to use online facility for filing Income Tax Returns using the Internet.
The filing of Income Tax Returns Online offers great convenience, fast in processing and
hassle-free option to the assessees. Income Tax Return has several part or phases which
we follow for paying tax. To know Income Tax Return in an easy way, it is divided into
the following sub sections:
What Is Income Tax Return
Income Tax Return Form
Authorised Signatory
Income Tax Return Filing
Income Tax Return
"Income Tax Return" is a term which is often used when we talk about income tax. It is a
way by which we pay this tax. When total annual income of a person, including all
sources, is more than maximum unchargeable limitation ( At present it is Rs. 1,50,000/-)
then that person is liable to pay income tax.
Late Return
Any person not filing the return within the time mentioned is allowed to file a late return
at any time before the expiry of one year from the end of the relevant assessment year or
before the completion of the assessment year, whichever is earlier.
Penalty
Penalty for delay filing of return is calculated as a percentage of the shortfall of tax. In
case where tax has been deducted at source, or advance tax has been duly paid, no
penalty is leviable.
Defective Return
If the return of income furnished by the assessee is defective according to assessing
officer, it is intimated to the assessee and given an opportunity to rectify the defect within
15 days from the date of such intimation or within such further period as may be allowed
by the assessing officer on the request of the assessee. If this is not rectified by the
assessee within the aforesaid period then the return shall be deemed invalid and further it
shall be deemed that the assessee had failed to furnish the return.
Under section 139(1) of the Income Tax Act, there are additional six conditions, which
forces a person to file his income tax return. These condition are:1.
2.
3.
4.
5.
6.
Form
No.
Assessee Type
For Companies
For those who have their own business income and claiming exemption u/s 11 of
the I.T. Act, 1961
2A
For those whose income source is neither business nor profession and income is
not more than Rs. 2 lakhs
2B
Return of Income for the block period like search & seizure cases
2C
2D
This is also known as Saral Form. It is for non Corporate Assessees other than
persons who claims exemption under Sec. 11
2E
Nay Saral Form- For resident individual/Hindu undivided family not having
income from business/profession/capital gains/agricultural income
3A
For those who is not a company and those deriving income from property held
for charitable and religious purposes claiming exemption under section 11 and
whose total income does not include "profits and gains of business or profession
For assessees including companies claming exemption under section 11
16AA Certificate for tax deducted at source from income chargeable under the head
"Salaries" - cum - Return of income
49A
60
61
For those whose source of income is agriculture and not any other, chargeable
tax mentioned under clauses mentioned above
There are following steps that must be followed for income tax return filing:
See the Heads of Income and decide which type of assessee you are
Select return form according to the type of assessee from the list
Before filing form pls. read the form carefully
Use black ball pen or other as instructed in form
There should not be any overwriting on the form
Fill name, father's name, date of birth as mentioned in your educational
certificates
Put signature of authorized person (pls. see the list of authorised signatory) on the
form at right place
Use your own PAN/TAN/GIR number for filing the income tax return
Use correct options/code to show your status in the income tax return form
Assessment year must be mentioned on return form clearly. Assessment year is
the last financial year for which tax has to pay
Mention your all source of income with income amount clearly and correctly
Calculate your taxable amount including surcharges and deducting rebate from
your income
Attached all required documents for getting deduction/ rebate or exemption in tax
After filling form pls. recheck that all the information given by you is correct and
on proper place
Don't give any wrong information in the form
Go to income tax department and submit the form to concerning income tax
assessing officer
File your income tax return before the last date of return filing. Last date for an
individual having only salary income is 30th June as well as last date for
individual having business income (if auditing not required) is 31st august.
15th September
In case of other than company/ corporate: Payment of 1st installment of advance income
tax
In case of a company/ corporate: Payment of 2nd installment of advance income tax
14th October
Submitting date for the statement of deduction of tax interest, dividend and other amount
paid to non resident during 1st July - 30th September. Form No: 27
31st October
(i) In case of non corporate: Submitting auditing report under section 44AB of Income
Tax Act. Form No: 3CA, 3CB, 3CC, 3CD, 3CE
(ii) In case of cooperative/ non corporate: filing of income tax return of the relevant
assessment year if it require to get his account audited under Income Tax Act. Form No: 2
filing of half yearly return against tax collected during 1st April - 30th September Form
No: 27EA, 27EB, 27EC, 27ED
Date of submission of annual audited account for approved programs under section 35
(2AA) of Income Tax Act 1961.
30th November
In case of a company - filing of annual return with auditing report under section 44AB
For annual return filing: Form 1 For submitting auditing report: Form 3CA & 3CD
15th December
In case of other than company - Payment of 2nd installment of advance for the financial
year
In case of a company - Payment of 3rd installment of advance for the financial year
Investment in such authorities which are working for planning & development of
cities and villages
Investment in co-operative societies
Income Type
Under Section
Agriculture Income
10(1)
10(2)
10(2A)
Receipts being in the nature of casual and non-recurring nature not 10(3)
exceeding Rs. 5,000/- (Rs. 2500/- in the case of winnings from
horse races, etc).
10(4)(ii)
10(4B)
10(5)
10(5A)
10(6)(i)
10(6)(ii)
10(6)(vi)
10(6)(viii)
10(6)(ix)
10(6)(x)
10(6)(xi)
10(10)(i)
10(10)(ii)
10(10)(iii)
10(10A)
10(10AA)
10(10B)
10(10BB)
10(10D)
10(11)
10(13A)
10(14)
10 (15)(iib)
Interest income from notified Relief Bonds w.e.f., assessment year 10 (15)(iic)
1989-90.
Interest on notified bonds owned by a non-resident etc. and bought 10 (15)(iid)
in foreign exchange subject to certain conditions.
Interest on securities under the Ceylon Monetary Law Act, 1949
10 (15)(iii)
10 (15)(iiia)
10 (15)(iv)(a)
10 (15)(iv)(c)
10 (15)(uv)(d)
10 (15)(iv)(e)
10(15) (iv)(fa)
10 (15)(iv)(g)
10 (15)(iv)(i)
10 (15)(v)
10(15A)
10(16)
10(17)(ii)
10(17)(ii)
10(17)(iii)
10(17A)(i)
10(18A)
10(20)
10(20A)
10(21)
10(22)
10(22A)
Income of news agency having been set up in India for the sole
purpose of collection & distribution of news provided its income
in any way is not distributed to its members.
10(22B)
10(23)
10(23A)
10(23AA)
10 (23AAA)
10(23B)
10(23BB)
10 (23BBA)
10 (23C)(i)
10 (23C)(ii)
10 (23C)(iii)
10 (23C) (iii)(a)
10 (23c)(iv)
10 (23c)(v)
10(23D)
10(23G)
10(24)
10(25)
10(25A)
10(26)
10(26A)
Income from winnings from lottery, agreement for draw in respect 10(26AA)
of which having been entered into upto 28-2-89 between Sikkim
Govt. and organising agents of such lottery subject to fulfilling of
such condition as specified. {to be omitted from 1-4-1998}
Income of any statutory corporation formed for promoting the
interests of Scheduled Castes or Scheduled tribes, etc., as
specified.
10(26B)
10(26BB)
10(27)
10(28)
10(30)
10(31)
10(32)
10(33)
Any income by way of dividends (whether interim or otherwise)
declared, distributed or paid by a Domestic Company on or after 16-1997 as referred to in section 115-O.
Any profits and gains of newly established industrial undertakings 10A
in free trade zones, electronic hardware/software technology parks
for any five consecutive assessment years within a block of eight
years from the assessment year corresponding to previous year in
which production started subject to fulfilling all the conditions as
specified.
Any profits and gains of newly established 100% export-oriented
units for any five consecutive assessment year within a block of
eight years from the assessment year corresponding to previous
year in which production started subject to fulfilling all the
conditions as specified.
10B
Income of any person from the property held under trust wholly or 11
in part for charitable or religious purposes as specified in detail
and subject to the provisions of sections 60 to 63.
12
Receipt of any voluntary contributions by a trust/institution
created/ established wholly for charitable or religious purposes
excluding the contributions made to it with specific direction to
form part of corpus: Such voluntary contributions be deemed to be
income from property in terms of section 11.
Income of political party chargeable as income from house
property or other sources or by way of voluntary contributions
received by it from any person subject to conditions as specified.
13A
has a maturity period of 15 years. The first loan can be taken in the third financial year
from the date of opening of the account, or upto 25% of the amount at credit at the end of
the first financial year. Loan amount can be returned in maximum of 36 installments. A
person can withdraw an amount (not more than 50% of the balance) every year. Under
Section 88 of Income Tax Act, 1961 there is a provision of tax benefit by investing in this
scheme. Interest on this scheme is tax free.
extended its benefits. Now it is open for employees of all departments of Central as well
as State Government, Nationalized Banks, Public Sector Undertakings, Financial
Institutions, Local Bodies like Municipalities and Zila Parisads, Educational Institutions
aided by the Government. According to Income Tax Act there is also a provision of
special relaxation in income tax on the basis of investment done in urban or rural areas.
Dividend
According to Income Tax Act,1961 there is a provision benefit in Income Tax if assessee
has an income as a dividend on investment in any of the following:
Shares
Mutual Funds
Unit of UTI
This dividend can be given by any company or coperative society.
Note:
Other Savings
1. Infrastructure Bonds,
Infrastructure bonds are available through issues of ICICI and IDBI, brought out in the
name of ICICI Safety Bonds and IDBI Flexibonds. These provide tax-saving benefits
under Section 88 of theIncome Tax Act, 1961, for the investor. You can reduce your tax
liability by upto Rs 16,000 per annum
3. Life Insurance:
Life insurance saving schemes for government owned Life Insurance Corporation of
India and other private life insurance companies like Bajaj Allianz, Birla Sun Life
Insurance, HDFC Life Insurance, ICICI Prudential
Section 80 CCE
Aggregate deduction u/s 80 C, u/s 80 CCC and 80 CCD can not exceed Rs. 1,00,000.
( One Lac)
section 139A of Income Tax Act, 1961, PAN number is required for the following
persons: Whose total annual income is more than the amount which is not chargeable
under income tax act
Whose income through business or other profession is more than Rs. 5 lakhs
Who is filling income tax return
The application form requesting for the allotment of PAN (PAN Card) is given in the
undermentioned link. Download it
No Tax
1,60,001 to 3,00,000
10%
3,00,001 to 5,00,000
20%
Above 5,00,000
30%
No Tax
1,90,001 to 3,00,000
10%
3,00,001 to 5,00,000
20%
Above 5,00,000
30%
No Tax
2,40,001 to 3,00,000
10%
3,00,001 to 5,00,000
20%
Above 5,00,000
30%
Bibliography:
Personal financial planning a text book of icfai university for MBA.
www.surfindia.com