Q.1: What is causal Income?

Casual Income

Casual income means an income which is casual in nature, i.e., which is unplanned, uncertain,
accidental, sudden income which occurs just by chance and the person cannot depend upon it to
produce income in future. This income means income in the nature of winning from lotteries,
crossword puzzles, races including horse races, card games and other games of any sort,
gambling, betting etc. Casual incomes upto Rs. 5000/- were exempt from tax but at present all
casual incomes are subject to tax at 30% plus education cess (including surcharge, if any). They
are treated as income from other sources and are taxable u/s 56 of Income Tax Act.

Conditions:

a. No expenditure or allowance can be allowed from such income.

b. Deduction under Chapter VI-A is not allowable from such income.

c. Adjustment of unexhausted basic exemption limit is also not permitted against such income.

Q.2: Define Tax Evasion, Tax Avoidance and Tax Planning

Tax Evasion: Tax Evasion is an illegal way to minimize tax liability through fraudulent
techniques like deliberate under-statement of taxable income or inflating expenses. It is an
unlawful attempt to reduce one’s tax burden. Tax Evasion is done with a motive of showing
fewer profits in order to avoid tax burden. It involves illegal practices such as making false
statements, hiding relevant documents, not maintaining complete records of the transactions,
concealment of income, overstatement of tax credit or presenting personal expenses as business
expenses. Tax evasion is a crime for which the assesse could be punished under the law.

Tax Planning: Tax planning is process of analyzing one’s financial situation in the most
efficient manner. Through tax planning one can reduce one’s tax liability. It involves planning
one’s income in a legal manner to avail various exemptions and deductions. Under Section 80C,
one can avail tax deduction if specific investments are made for a specific period up to a limit of
Rs 1, 50,000. The most popular ways of saving tax are investing in PPF accounts, National
Saving Certificate, Fixed Deposit, Mutual Funds and Provident Funds. Tax planning involves
applying various advantageous provisions which are legal and entitles the assesse to avail the
benefit of deductions, credits, concessions, rebates and exemptions. Or we can say that Tax
planning is an art in which there is a logical planning of one’s financial affairs in such a manner
that benefits the assesse with all the eligible provisions of the taxation law. Tax planning is an
honest approach of applying the provisions which comes within the framework of taxation law.

Tax Avoidance: Tax avoidance is an act of using legal methods to minimize tax liability. In
other words, it is an act of using tax regime in a single territory for one’s personal benefits to
decrease one’s tax burden. Although Tax avoidance is a legal method, it is not advisable as it
could be used for one’s own advantage to reduce the amount of tax that is payable. Tax
avoidance is an activity of taking unfair advantage of the shortcomings in the tax rules by finding
new ways to avoid the payment of taxes that are within the limits of the law. Tax avoidance can
be done by adjusting the accounts in such a manner that there will be no violation of tax rules.
Tax avoidance is lawful but in some cases it could come in the category of crime.

Features and differences between Tax evasion, Tax avoidance and Tax Planning:

1. Nature: Tax planning and Tax avoidance is legal whereas Tax evasion is illegal

2. Attributes: Tax planning is moral. Tax avoidance is immoral. Tax evasion is illegal and
objectionable.

3. Motive:  Tax planning is the method of saving tax .However tax avoidance is dodging of tax.
Tax evasion is an act of concealing tax.

4. Consequences: Tax avoidance leads to the deferment of tax liability. Tax evasion leads to
penalty or imprisonment.

5. Objective: The objective of Tax avoidance is to reduce tax liability by applying the script of
law whereas Tax evasion is done to reduce tax liability by exercising unfair means. Tax planning
is done to reduce the liability of tax by applying the provision and moral of law.

6. Permissible: Tax planning and Tax avoidance are permissible whereas Tax evasion is not
permissible.

Q.3: Describe Hindu Undivided Family.

HUF

 Hindu Undivided Family (‘HUF’) is treated as a ‘person’ under section 2(31) of the
Income-tax Act, 1961 (Act). HUF is a separate entity for the purpose of assessment under
the Act.
 The Hindu Undivided Family can best be defined as a family that consists of a common
ancestor and all his lineal male descendants and their wives and unmarried daughters.
The Hindu Undivided Family (HUF) cannot be created by acts of any party. The only
exceptions are in the case of an adoption or a marriage when a stranger may become a
HUF member. An undivided family, which is a normal condition of Hindu society, is
ordinarily joint, not only in estate but also in food and worship.
Q.4: What incomes are deemed to have accrued or arise in India?
Ans: Income from any property, asset or other source of income located in India. Interest
received from a non-resident is treated as income deemed to accrue or arise in India if such
interest is in respect of funds borrowed by the non-resident for carrying on any
business/profession in India.

Following incomes are treated as incomes deemed to have accrued or arisen in India:

 Capital gain arising on transfer of property situated in India.

 Income from business connection in India.

 Income from salary in respect of services rendered in India.

 Salary received by an Indian national from Government of India in respect of service

rendered outside India. However, allowances and perquisites are exempt in this case.

 Income from any property, asset or other source of income located in India.

 Dividend paid by an Indian company.

 Interest received from Government of India.

 Interest received from a resident is treated as income deemed to have accrued or arisen in
India in all cases, except where such interest is earned in respect of funds borrowed by
the resident and used by resident for carrying on business/profession outside India or is in
respect of funds borrowed by the resident and is used for earning income from any source
outside India.

 Interest received from a non-resident is treated as income deemed to accrue or arise in

India if such interest is in respect of funds borrowed by the non-resident for carrying on
any business/profession in India.

 Royalty/fees for technical services received from Government of India.

 Royalty/fees for technical services received from resident is treated as income deemed to
have accrued or arisen in India in all cases, except where such royalty/fees relates to
business/profession/other source of income carried on by the payer outside India.

 Royalty/fees for technical services received from non-resident is treated as income

deemed to have accrued or arisen in India if such royalty/fees is for
business/profession/other source of income carried by the payer in India.
Q.5: Meaning of Indian Income and Foreign Income under Income Tax.

Indian Income:

Income accruing or arising in India in any financial year is considered as Indian Income:

(i) it is derived from a business controlled in or a profession set up in India;

(ii) it is received or deemed to be received in India in such year by him or on his behalf; and
(iii) it is deemed to accrue or arise to him in India during such year

Foreign Income:

Income accruing or arising outside India in any financial year is considered as foreign
Income:

(i) it is not derived from a business controlled in or a profession set up in India;

(ii) it is not received or deemed to be received in India in such year by him or on his
behalf; and
(iii) it is not deemed to accrue or arise to him in India during such year

Q.7: What is Income Tax? Describe the history of Income Tax in India.

Meaning of tax

The tax is a compulsory payment that has to be made by individual or other persons to central
government, state government or local government. Tax is based on certain well establishment
rules or criteria such as income earned, property owned or expenditure made.

Income tax act

The income tax act of 1961 has been in effect from the first day of April 1962 (sec 1). It contains
298 sec, sub sections, schedules etc. the income tax a rule of 1962 was framed by central board
of Direct Taxes (CBDT).

History income tax in India

In India, this 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.
Thereafter ,several amendments were made in it from time to time. In 1886,a separate Income
tax act was passed. This act remained in force up to, with various amendments from time to
time. In 1918, a new income tax 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. The Income Tax Act 1961 has been brought into force with 1 April
1962.It applies to the whole of India and Sikkim(including Jammu and Kashmir).Since 1962
several amendments of far-reaching nature have been made in the Income Tax Act by the Union
Budget every year.

The history of income tax in India can be divided into three periods

 1860-1885
 1886-1914
 1914 till date

Currently Income Tax Act, 1961 is applicable.

Types of Income Tax payers

The Income tax Act has classified the types of taxpayers in categories so as to apply different tax
rates for different types of taxpayers.
Taxpayers are categorized as below:

 Individuals, Hindu Undivided Family (HUF), Association of Persons(AOP) and Body of

Individuals (BOI)
 Firms
 Companies

Further, Individuals are broadly classified into residents and non-residents. Resident individuals
are liable to pay tax on their global income in India i.e. income earned in India and abroad.
Whereas, those who qualify as Non-residents need to pay taxes only on income earned or
accrued in India. The residential status has to be determined separately for tax purposes for every
financial year on the basis of the individual tenor of stay in India. Resident Individuals are
further classified into below mentioned categories for tax purposes-

 Individuals less than 60 years of age

 Individuals aged more than 60 but less than 80 years
 Individuals aged more than 80 years

Q.11: What are different incomes which are exempted under section 10 of Income Tax
Act?

Exempt Income

Any income that an individual acquires or earns during the course of a financial year that is
deemed to be non taxable is referred to as ‘Exempt Income’. Exempt income comes in many
forms such as the interest received through agricultural means, interest received through PPF,
long term capital gains earned through shares and stocks, and much more. However, there is still
some debate on what exactly constitutes ‘exempt income’, and if such income is required to be
declared by the taxpayer when filing his or her income tax returns.
Income Exempt from Tax As Per Section 10
Most income that is exempted from tax is listed under Section 10 of the Income Tax Act. This
section contains a list of income that is deemed or considered to be free from taxation.
Exempted income specified under Section 10 is as follows:

Section 10(1) Income earned through agricultural means

Section 10(2) Any amount received by an individual through a coparcener from an HUF

Section 10(2A) Income received by partners of a firm, as shared between them

Any interest that has been paid to a person who is not a resident Indian, but of
Section 10(4B)
Indian origin

Section 10(5) Concession on travel given to an employee who is also a citizen of India

Section 10(6) Any income earned or received by a non Indian citizen

Section 10(7) Allowances received by government employees stationed abroad

Income earned by foreign employees in India under the Cooperative Technical

Section 10(8)
Assistance Program

Section 10(8A) Income earned by a consultant

Section 10(8B) Income earned by a consultant’s staff or employees

Income earned by any family member of a foreign employee in India under the
Section 10(9)
Cooperative Technical Assistance Program

Section 10(10) Gratuity

Section 10(10A) The commuted value of the pension earned by an individual

Section
Any amount earned via encashment of leave at the time of retirement
10(10AA)
Section 10(10B) Compensation paid to workers due to relocation

Section
Any remittance obtained as per the Bhopal Gas Leak Disaster Act 1985
10(10BB)

Section
Any compensation obtained in the event of a disaster
10(10BC)

Section 10(10C) Compensation in lieu of retirement from a PBC or any other firm

Section
Any income received through taxation on perquisites
10(10CC)

Section 10(10D) Any amount acquired via a life insurance policy

Section 10(11) Any payment received via the Statutory Provident Fund

Section 10(12) Any payment received via a recognised or authorised Fund

Section 10(13) Any payment received through a Superannuation Fund

Section 10(13A) House Rent Allowance

Section 10(14) Allowances utilised to meet business expenses

Section 10(15) Income received in the form of interest

Income received by an Indian firm through the lease of an aircraft from a foreign
Section 10(15A)
firm or government

Section 10(16) Income in the form of a scholarship

Section 10(17) Allowances granted to MLCs, MLAs or MPs

Section 10(17A) Income received in the form of a government award

Section 10(18) Income received in the form of pension by winners of awards for heroism
Section 10(19) Income received by family members of the armed forces in the form of pension

Section 10(19A) Income received from a single palace of an exruler

Section 10(20) Income received by a localised body or authority

Section 10(21) Income received by an association involved with scientific research

Section 10(22B) Income earned by a news or broadcasting agency

Section 10(23A) Income earned by certain Professional Institutes

Section
Income acquired through Regimental Fund
10(23AA)

Section
Income acquired through an employee welfare fund
10(23AAA)

Section
Insurance pension fund income
10(23MB)

Section 10(23B) Income earned by village industry development institutions

Section
Income earned by state level Khadi and Village Industries Board
10(23BB)

Section Income earned by regulatory bodies of institutions affiliated with religion and
10(23BBA) charity

Section
Income received by the European Economic Community
10(23BBB)

Section
Income received through SAARC funded regional projects
10(23BBC)
Section
Income received by the IRDA
10(23BBE)

Section
Income received through Prasar Bharti
10(23BBH)

Section 10(23C) Income received by any individual through certain specified funds

Section 10(23D) Income earned via Mutual Funds

Section
Income earned via a Securitisation Trust
10(23DA)j

Section
Income earned through an IPF
10(23EA)

Section
Income received by the Credit Guarantee Trust for Small Industries
10(23EB)

Section
Income exemption of IPF
10(23ED)

Section Income exemption of specified income received by Venture Capital Firms, Funds
10(23DFB) or Businesses

Section 10(43) Any income in relation to reversal of mortgage

Section 10(47) Any income that is exempt under the category of infrastructure debt fund

Any income earned by a foreign firm or company due to crude oil sales within
Section 10(48)
India

Section 10(49) Any income earned by the NFHC (National Finance Holdings Company)