Business Taxation

BBA-III Yr.(V-Sem)
Mr.M.S.Altamash
Asst.Prof.& HOD (Management Dept.)SSBES’s
ITM,Nanded-2
Unit No.1
Basic concepts of Direct Tax
 Direct Tax:
 Introduction: Income tax is an important direct tax. It
is a prominent and most significant source of revenue of
the government. The government needs money to
maintain:
 1. Law & order in the country.
 2. Safeguard the security of the country from foreign
powers.
 3. Welfare and development programmes which will
bridge the gap between the rich and the poor.
 All this requires mobilisation of funds from various
sources. These sources may be direct or indirect.
 Income tax, being a direct tax, is an important tool to achieve balanced
socio-economic growth by providing concessions and incentives in income
tax for various development purposes.
 Who is liable to pay income tax?
 Every person, whose taxable income for the previous financial year
exceeds the minimum taxable limit is liable to pay income tax during the
current financial year on the income of the previous financial year at the
rates applicable during the current financial year.
Brief History of Income Tax in
India
 1. In India Income tax was introduced for the first time
in 1860 , by Sir James Wilson in order to meet the losses
sustained by the Government on account of the Military
Mutiny of 1857.
 2.In 1886, a separate Income Tax Act was passed. This
Act remained in force up to 1917, with various
amendments from time to time.
 3. In 1918, a new Income Tax Act was passed and again it was replaced by
another new Act which was passed in 1922. This Act remained in force up
to the assessment year 1961-62 with numerous amendments.
 4. The Income Tax Act of 1922 had become very complicated on account of
innumerable amendments. The Government of India, therefore, referred
it to the Law Commission in 1956 with a view to simplify. In Consultation
with Ministry of Law finally the Income Tax Act, 1961 was passed.
 5. The Income Tax Act. 1961 has been brought into force with effect from
1st April,1962. It applies to the whole of India and Sikkim (including
Jammu & Kashmir).
 6. Since 1962 several amendments have been made in the Income Tax Act
by the Finance Act every year.
Direct & Indirect Tax

 Taxes are broadly classified into two categories.

 1.Direct Tax
 2.Indirect Tax
Direct Tax

 A tax is considered to be direct if the impact and incidence

of tax is on the same person.
 E.g.Income tax
 Advantages:
 1. Equitable: The burden of direct tax cannot be shifted
from one person to another, hence equity of sacrifice is
achieved through it.
 2. Economical: The cost of collection of Direct taxes is low.
They are mostly collected at the source.
 E.g. Income tax is deducted from an officer’s pay every
month this saves expenses. The employer acts as a
honorary tax collector which means great economy to the
government.
 3. Certain: In case of direct tax payer knows how much tax is due from
them and when? The authority also knows the amount of revenue they can
expect.Thus, there is certainty on both sides (tax payer & the govt.)
 4. Elastic: If the state govt.suddenly needs more funds in an emergency,
direct tax can well serve the purpose thus, the yield from income tax can
easily be increased as per the needs.
 Disadvantages:

 1. Inconvenient: The great disadvantage of direct tax is that it pinches

the payer. He squeaks when a lump sum is taken out of his pocket. Thus
direct tax is very inconvenient to pay.
 2. Evadable: An assessee can submit a false return of income and thus
evade the tax. Thus those who should be paying tax get scot free by hiding
their income.
 3. Disincentive: If the tax is heavy it discourages savings and investment
in the country. In this case, the country will suffer economically.
2.Indirect tax:

 A tax is considered to be indirect if the impact and

incidence is on different persons.
 Eg.Goods and Services Tax
 Advantages:
 1. Poor people can contribute: Indirect tax are the
only means of reaching the poor people. The poor
people are always exempted from paying direct tax.
Thus they can contribute through indirect tax.
 2. Convenient: Indirect tax is convenient to both the payer and the state.
The tax payer don’t feel the burden much because indirect tax is paid in
small amount and partly because it is paid only when making purchases.
 3. Easy Collection: Collection takes place automatically when are goods
are purchased and sold. The dealer collects tax when he charges the price
and his is an honorary tax collector.
 4. Non-evadable: Indirect tax cannot be evaded as they are part of the
price. They can be evaded only when the tax article is not consumed and
this may not be always be possible.
 Disadvantages:
 1. Non-equitable: Indirect tax are non equitable. The poor person and the
rich person pay the same tax.
 Disadvantages:
 1. Non-equitable: Indirect tax are non equitable. The poor person and the
rich person pay the same tax.
 2. Increase in prices: Indirect tax causes the price of an article to be
increased by more than the tax. A fraction of money unit cannot be
calculated. So every middleman charges more than the tax.
 3. Uneconomical: The cost of collection of indirect tax is quite heavy.
Large administrative staff is required to administer tax, this is a costly
affair.
 4. Non-evadable: Indirect tax cannot be evaded as they are part of the
price. They can be evaded only when the tax article is not consumed and
this may not be always be possible.
What is Income Tax?

 Income tax is an annual tax charged in every assessment

year at the prescribed rates on every person in respect
of his total income for the relevant previous year.
Characteristics of Income Tax

 1. Direct Tax: Income tax is a Direct Tax. Direct tax

means such tax which is paid by a person who bears the
tax burden.
 2. Central Tax: Income tax is imposed and recovered by
the Central Government.
 3. Tax on Total Income: Income tax is calculated on
total income. Total Income is also called taxable
income. Total income is calculated according to the
provisions of the Income Tax Act.
 4. Tax-Exempted Limit: If income exceeds tax-exempt limit of income,
then tax is imposed. Tax-exempt limit of income for the Assessment Year
2020-2021 are as follows:
 A) Senior Citizen: Senior citizen (resident in India) who is of the age of 60
years or more but less than 80 years Rs.3,00,000.
 B) Super Senior Citizen: Super senior citizen (resident in India), who is of
the age of 80 years or more Rs.5,00,000.
 C) Other Individuals, HUF, Association of persons, Body of Individual
Rs.2,50,000.
 D) Firm, Company, Local Body : Nil.
 5. Progressive Tax Rates: Tax is not imposed at the same rate on the total
income of an individual, HUF, AOP or BOI. Tax rates increase with an
increase in income. Minimum tax rate is 5% and maximum rate is 30 %.
Firms and companies incomes are taxed at the rate of 30%.
 6. Surcharge: Surcharge is imposed on the amount of income tax.
Surcharge rates are as follows for the Assessment Year 2020-2021.
 i) For individuals, HUF, AOP or BOI : 10% if total income exceeds 50 lakh
rupees but does not exceed 1 crore rupees. @15% if total income exceeds
1 crore rupees.
 Ii) For Firms : @ 12% if total income exceeds 1 crore rupees.
 Iii) For Domestic Company : @ 7% if total income exceeds 1 crore rupees
but does not exceed 10 crore rupees. @12 % if total income exceeds 10
crore rupees.
 7. Health & Education Cess: All assessees are liable to pay health and
education cess @ 4% on the total amount of income tax including
surcharge.
 8. Tax Burden: Tax is imposed at a progressive rate on the income of
individual and HUF therefore rich person bear more tax burden.
 9. Administration: Tax is imposed and recovered by the income tax
department. Income tax department works under the control of Central
Board of Direct Taxes.(CBDT).
 10. Allocation of Amount of Income Tax:
 The total amount of income tax recovered by government is allocated
among the Central Government and the State Government according to
the recommendation of the Finance Commission.
 The State Government will not be given any share of income tax revenue
from the following amounts:
 1. Income tax amount recovered from companies.
 2. Amount of Surcharge.
 3. Amount of health & education cess.
Basic Principles of Charging
Income Tax
 The following basic principles are the basis of charging
Income tax:
 1. Income tax is an annual tax on income.
 2. Income of the previous year is taxable in the next
following the assessment year at the rate or rates
applicable to that assessment year. However, there are
certain exceptions to this rule.
 3. Tax rates are fixed by the annual Finance Act.
 4. Tax is charged on every person defined in sections 2(31).
 5. The tax is charged on the total income of every person
computed in according with the provisions of this Act.
 6. Income tax is to be deducted at the source of income or
paid in advance as provided under provisions of the Act.
 The total income is computed on the basis of the residential status of the
assessee. The income is classified into the following five heads:
 1. Income from Salaries;
 2. Income from House Property;
 3. Profits & Gains of Business or Profession;
 4. Capital Gains;
 5. Income from Other Sources.
Thank You

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