Dr.

Shannu NARAYAN
PGP – Finance Batch
FinTax
Session 1
Definition of tax
 Tax is the financial charge imposed by the Government on
income, commodity or activity.

 Hugh Dalton defines ‘tax’ as:

"a compulsory contribution imposed by a public authority,
irrespective of the exact amount of service rendered to the taxpayer
in return, and not imposed as penalty for any legal offence.“

Charles M. Allan defines:

“A Tax is any leakage from the circular flow of income into the
public sector, excepting loan transactions and direct payment for
publicly produced goods and services upto the cost of producing
these goods and services.”
Canons of Taxation
(Administrative aspect of tax)
 Canon of Equity – based on rate - Horizontal Equity
(taxpayers with equal ability must be same amount of tax)
and Vertical Equity (Taxpayer with greater ability must pay
more tax)

 Canon of Certainty – certainty of amount of tax

 Canon of Convenience – based on method of levying tax

– Time and manner of payment must be convenient

 Canon of Economy – collection of taxes must be more

than expenses involved by the government
Direct and Indirect taxes
 Direct – taxes directly levied on income of a ‘person’
or wealth of a ‘person’ and its burden cannot be shifted

 Indirect - imposed on price of goods or services – can

shift the incidence of tax to another ‘person’
(Consumer)

Direct Tax Indirect Tax

Income Tax GST
Corporate Tax Excise Duties
Capital gains tax Customs Duties
Capital Acquisition Tax Stamp Duties
Tax Structure in India
 Constitution of India, 1950 is the base of all laws.

 Article 265– No tax shall be levied or collected except

by the Authority of Law.

 Article 246- Distributes legislative powers including

taxation, between the Parliament of India and the
State Legislature.
Laws pertaining to taxation
 Income Tax Act, 1961

 Income Tax Rules, 1962

 Finance Act passed every Year

 Notifications of CBDT

 Circulars of CBDT

 Judicial Decisions
Computation of Tax Liability
Include following steps :
 Determine the category of person

 Determine the residential status of the person as per

section 6 of the IT Act, 1961

 Calculate the Total income as per the provisions

 Calculate the tax on income

Person [S. 2(31)]
 Individual
 Hindu Undivided Family (HUF)
 Companies
 Firms
 Association of Persons (AoP)
 Body of Individuals (BoI)
 Local Authorities
 Every Artificial Juridical Person not covered above
Basic Concepts
Individual -
 natural human being i.e. male, female, minor or a person
of sound or unsound mind.

Company (S.2 (17))- Domestic company & Foreign company

 any institution, association or body which is or was
assessable or was assessed as a company under the previous
Income tax laws

 any institution, association or body, whether incorporated

or not and whether Indian or non- Indian, which is
declared by general or special order of the Board to be a
company for that particular assessment year
Contd..
 Firm - Both partnership Firm and Limited Liability
Partnership Firm

 Association of Person – 2 or more persons joining

for a common purpose or common action to produce
income, profits or gains - It may consist of individuals,
HUF, companies, firms, etc. as members

 Body of Individuals - Only individuals can be the

members - join together for common purposes
Contd..
 Local authority - means a municipal committee,
district board, body of port commissioners, or other
authority legally entitled to or entrusted by the
Government with the control and management of a
Municipal or local fund.

 Every artificial, juridical person, not falling

within any of the above categories – a statutory
corporation, deity or charitable institution or an
endowment for charitable or religious purposes etc,.
Assessment Year (AY) & Previous
Year (PY)
Assessment Year (S.2(29)- Period of 12 months commencing on 1st April
every year till 31st March next year.

Exception - Assessee will be taxed in previous year itself:

 Income of Non-Resident from Shipping
 persons leaving India either permanently or for long duration
 bodies formed for short duration
 person trying to alienate his assets with a view to avoid tax
 discontinued business

Previous Year (S.3) - the financial year immediately preceding the

assessment year
For example Mr.Y sets up a new business on May 15, 2017. Previous year for
the assessment year 2018-19 is the period commencing on May 15, 2017
and ending on March 31, 2018.
Assessee (S.2 (7))
 A person by whom tax or any other sum is payable
under the Act.

The expression “other sum of money” includes

 Fine, interest, penalty and tax or
 person to whom any refund of tax etc. is due under the
Act or
 if any proceeding under the Act has been taken against
any person, he is also an assessee.
Charge Of Income Tax (S.4)
 Section 4 lays down the basis on which tax is imposed.

 The charging section is the backbone of the Act, it lays down the
provisions as to what are taxable and at what rates; income of which
period is taxable and in whose hands.

 a) IT shall be charged at the rate or rates prescribed in the Finance Act

for the relevant previous year,
 b) the charge of tax is on various persons specified u/s 2(31);
 c) the income sought to be taxed is that of the previous year and not of
the assessment year
 d) the levy of tax on the assessee is on his total or taxable income
computed in accordance with and subject to the appropriate provisions
of the income tax Act, including provisions for the levy of additional
income-tax