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Basic concepts

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Charge of tax

Section 4

• Tax shall be charged at the rates prescribed for the year by the annual Finance Act.

• Tax is charged on a person specified u/s 2(31).

• Tax is chargeable on the total income earned during the previous year and not
the assessment year.

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Tax rates – Individuals etc.
A. Individuals, HUFs, AOP, BOI
I. Resident Individual (other than II and III below), non-resident individual, HUF, AOP & BOI

Total income (TI)


Income tax rates Surcharge Cess
range

Upto Rs.2,50,000 Nil Nil Nil

Rs.2,50,000 to 10% of (TI minus


Nil 3% of IT
Rs.5,00,000 Rs.2,50,000) Note 1
Rs.5,00,000 to Rs.25,000 + 20% of (TI minus
Nil 3% of IT
Rs.10,00,000 Rs.5,00,000)
Rs.10,00,000 to Rs.1,25,000 + 30% of (TI
Nil 3% of IT
Rs.1,00,00,000 minus Rs.10,00,000)
Above Rs. Rs.28,25,000 + 30% of (TI 15% of IT 3% of
1,00,00,000 minus Rs.1,00,00,000) Note 2 (IT+SC)

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Tax rates – resident senior citizens
II. Individual resident who is of the age of 60 years or more but below the age of 80
years at any time during the previous year
Total income (TI)
Income tax rates Surcharge Cess
range
Upto Rs.3,00,000 Nil Nil Nil
Rs.3,00,000 to 10% of (TI minus
Nil 3% of IT
Rs.5,00,000 Rs.3,00,000) Note 1
Rs.5,00,000 to Rs.20,000 + 20% of (TI
Nil 3% of IT
Rs.10,00,000 minus Rs.5,00,000)
Rs.10,00,000 to Rs.1,20,000 + 30% of (TI
Nil 3% of IT
Rs.1,00,00,000 minus Rs.10,00,000)
Rs.28,20,000 + 30% of (TI 15% of IT
Above Rs. 1,00,00,000 3% of (IT+SC)
minus Rs.1,00,00,000) Note 2

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Tax rates – resident very senior citizens

III. Individual resident who is of the age of 80 years or more at any time during the
previous year

Total income (TI) range Income tax rates Surcharge Cess


Upto Rs.5,00,000 Nil Nil Nil
Rs.5,00,000 to 20% of (TI minus
Nil 3% of IT
Rs.10,00,000 Rs.5,00,000)
Rs.10,00,000 to Rs.1,00,000 + 30% of (TI
Nil 3% of IT
Rs.1,00,00,000 minus Rs.10,00,000)
Rs.28,00,000 + 30% of
15% of IT 3% of
Above Rs. 1,00,00,000 (TI minus
Note 2 (IT+SC)
Rs.1,00,00,000)

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Tax rebate, surcharge, cess

Notes

1. Rebate u/s 87A – A resident individual (whose net income does not exceed
Rs.5,00,000) can avail rebate u/s 87A. It is deductible from income tax before
calculating education cess. The amount of rebate is 100% of income tax or
Rs.5,000 whichever is less.
2. Surcharge – Surcharge is 15% of income tax if total income exceeds Rs.1 crore. It is
subject to marginal relief.
3. Cess : Cess = Education cess + Secondary and Higher education cess.
Education cess = 2% of income tax and surcharge.
Secondary and Higher education cess = 1% of income tax and surcharge.

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Tax rates – Co-operative society
B. Co-operative Society

Income Level / Slabs Income Tax Rate


Total income (TI) upto Rs.
i. 10% of income.
10,000/-.
TI exceeds Rs. 10,000/- but does Rs.1,000 + 20% of amount by which
ii.
not exceed Rs. 20,000/-. the TI exceeds Rs. 10,000/-
Rs. 3,000/- + 30% of the amount by
iii. TI exceeds Rs. 20,000/-.
which the TI exceeds Rs.20,000/-.

Surcharge : 12% of income tax if net income exceeds Rs.1 crore. Marginal relief
available.
Education Cess and Secondary & Higher Education cess : 3% of the Income-tax.

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Tax rates – Firm, LLP, local authority

C. Firm / Limited Liability Partnership (LLP)


i. Income-tax: 30% of total income.
ii. Surcharge : 12% of income tax if net income exceeds Rs.1 crore. Marginal
relief available.
ii. Education Cess and Secondary & Higher Education cess : 3% of Income-tax +
surcharge.

D. Local Authority
i. Income-tax: 30% of total income.
ii. Surcharge : 12% of income tax if net income exceeds Rs.1 crore. Marginal
relief available.
iii. Education Cess and Secondary & Higher Education cess : 3% of Income-tax.

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Tax rates – domestic company

E. Domestic Company
i. Income-tax: 30% of total income.
ii. Surcharge: 7% of such income tax, provided that the total income exceeds
Rs. 1 crore but does not exceed Rs.10 crores. 12% of income tax if total
income exceeds Rs. 10 crores. Marginal relief available.
iii. Education Cess and Secondary & Higher Education cess : 3% of the total of
Income-tax and Surcharge.

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Tax rates – Company other than a domestic
company
F. Company other than a Domestic Company

i. Income-tax:
@ 40%

ii. Surcharge: 2% of income tax, provided total income exceeds Rs. 1 crore but
does not exceed Rs.10 crores. 5% of income tax if total income exceeds
Rs.10 crores. Marginal relief available.

iii. Education Cess and Secondary & Higher Education cess : 3% of the total of
Income-tax and Surcharge.

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…Rates of tax

Note :
• In case of a corporate assessee, tax liability cannot be less than Minimum
Alternate Tax. [Section 115JB]

Minimum Alternate Tax rate for AY 2017-18


18.5% of book profits + SC (as applicable) + Education cess @ 2% + Secondary and
Higher education cess @ 1%.

9% of book profits + SC (as applicable) + Education cess @ 2% + Secondary and Higher


education cess @ 1% if the assessee is a unit located in an International Financial
Services Centre and derives its income solely in convertible foreign exchange
(applicable from AY 2017-18) .

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…Rates of Tax

• In the case of any other tax payer, tax liability cannot be less than Alternate
Minimum Tax

• For AY 2017-18, rate of Alternate Minimum Tax is 18.5% of adjusted total income +
surcharge + Education cess and Secondary & Higher Education cess as per Section
115JC.
Surcharge is 12% of income tax if net income exceeds Rs.1 crore.

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Special rates of tax

The above rates are prescribed by the Annual Finance Acts.

However, in respect of the following types of income, the Income tax Act has
prescribed specific rates.

1. Sec. 112 – 20% in respect of long term capital gains

2. Section 111A – 15% in respect of short term capital gains on transfer of –


(i) an equity share in a company or
(ii) a unit of an equity oriented fund
when
(i) the transaction of sale has been entered into on or after 1-10-2004
(ii) such transaction should be chargeable to securities transaction tax

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…Special rates of tax

3. Section 115BB – 30% for winnings from –


(i) Lottery
(ii) Crossword puzzle
(iii) Race including horse race
(iv) Card game and other game of any sort
(v) Gambling or betting of any form

Note :
Above special rates to be increased by applicable surcharge, education cess and
secondary and higher education cess.

Marginal relief available.

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Concept of income

• Definition of the term “income” u/s 2(24) is an inclusive definition.

• Income may be a periodic monetary return or may not arise regularly e.g.
winnings from lotteries, crossword puzzles etc.

• Income normally refer to revenue receipts. Capital receipts are not taxable unless
specifically included e.g. capital gains.

• Income means net receipts after deducting expenses incurred, to the extent
permitted under the Act.

• Income taxable under the head “Profits and gains of business or profession” or
“Income from other sources” is taxable on due basis or receipt basis, depending
upon the method of accounting regularly employed by the assessee.

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Concept of income

• Income earned in a previous year is chargeable to tax in the assessment year.

• Previous year is the financial year ending on 31st March in which the income has
accrued / received.

• Assessment year is the financial year ending on 31st March, following the previous
year. Income of the previous year is assessed during the assessment year
following the previous year.

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Computation of total income and tax payable

1. Determination of residential status


- Resident
 Resident and ordinarily resident
 Resident but not ordinarily resident

- Non resident

2. Classification of income under different heads


- Salaries
- Income from House Property
- Profits and gains of business or profession
- Capital gains
- Income from other sources

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…Computation of total income and tax payable

3. Exclusion of income not chargeable to tax


- Partial exclusion
- Total exclusion

4. Computation of income under each head and aggregation of income

5. Clubbing of income of spouse, minor child etc.

6. Set off or carry forward and set off of losses

7. Computation of gross total income

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…Computation of total income and tax payable

8. Deductions from gross total income


- Deductions in respect of certain payments
- Deductions in respect of certain incomes
- Other deductions

9. Computation of total income


Total income = Gross total income
Less : Deductions

10. Rounding off of total income to the nearest multiple of Rs.10.

11. Application of rates of tax to the total income (special rates + normal rates)
- Income tax
- Surcharge
- Education cess and secondary & higher education cess

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…Computation of total income and tax payable

12. Deduction of rebate u/s 86, 89, 90, 90A or 91

13. Tax liability = (11 -12)

14. Add : Interest and penalty

15. Deduction of prepaid taxes (advance tax, self assessment tax, TDS, TCS,
MAT/AMT credit)

16. Tax payable = (13 + 14 -15)

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Definitions – Assessee – Sec. 2(7)

“Assessee” means a person by whom any tax or any other sum of money is payable
under this Act, and includes—

(a) every person in respect of whom any proceeding under this Act has been
taken for the assessment of
 his income or
 fringe benefits or
 the income of any other person in respect of which he is assessable, or
 the loss sustained by him or by such other person, or
 the amount of refund due to him or to such other person ;

(b) every person who is deemed to be an assessee under any provision of this Act;

(c) every person who is deemed to be an assessee in default under any provision
of this Act ;

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Definitions – Assessment – Sec. 2(8)

• “Assessment” is the procedure by which the income of an assessee is determined


by the Assessing Officer.

• Assessment includes reassessment.

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Definitions – Person – Sec. 2(31)

“Person” includes—
(i) an individual
(ii) a Hindu undivided family
(iii) a company
(iv) a firm
(v) an association of persons or a body of individuals, whether incorporated or
not,
(vi) a local authority, and
(vii) every artificial juridical person, not falling within any of the preceding sub-
clauses.
Explanation.—For the purposes of this clause, an association of persons or a body of
individuals or a local authority or an artificial juridical person shall be deemed to be a
person, whether or not such association or body or authority or juridical person was
formed or established or incorporated with the object of deriving income, profits or
gains.

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(i) Individual

• “Individual” means a natural person i.e. a human being.

• Includes males and females.

• Also includes a minor or person of unsound mind. In such a case assessment may
be made u/s 161(1) on the guardian or manager of the minor or lunatic.

• In the case of deceased person, assessment would be made on the legal


representative.

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(ii) Hindu Undivided Family (HUF)

“Hindu undivided family” has not been defined under the Income tax Act.

• HUF defined under the Hindu law as a family, which consists of all males lineally
descended from a common ancestor and includes their wives and unmarried
daughters.

• A male member continues to be a member of the HUF until there is a partition of


the family. After partition, he becomes a member of another smaller HUF.

• A female member ceases to be a member of the HUF in which she was born, when
she gets married. On marriage, she becomes a member of her husband’s HUF.

• HUF may contain many members, but members within four degrees (including the
head of the family i.e. “Karta”) are called co-parceners.

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(iii) Company – Sec. 2(17)
“Company" means—

(i) any Indian company, as defined u/s 2(26) or

(ii) any body corporate incorporated by or under the laws of a country outside
India, i.e. any foreign company or

(iii) any institution, association or body which is or was assessable or was


assessed as a company for any assessment year under the Indian Income-tax
Act, 1922 or which is or was assessable or was assessed under this Act as a
company for any assessment year commencing on or before the 1st day of
April, 1970, or

(iv) 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 such assessment years as may be specified
in the CBDT’s order.

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Domestic Company – Sec. 2(22A)

Classes of Companies

1. Domestic companies
2. Foreign companies

1. Domestic company [Sec. 2(22A)]


“Domestic company" means
- an Indian company,
- or any other company
 which, in respect of its income liable to tax under this Act,
 has made the prescribed arrangements for the declaration and payment,
 within India,
 of the dividends (including dividends on preference shares) payable out of
such income.

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…Domestic Company – Sec. 2(22A)

Prescribed arrangements for the declaration and payment of dividends within India
(Rule 27) :

1. Share register for all shareholders shall be maintained at the principal place of
business within India from 1st April of each assessment year.
2. The general meeting of the shareholders for passing the accounts of the previous
year and declaring dividends in respect thereof shall be held only at a place within
India.
3. The dividends declared shall be payable only within India to all the shareholders.

• Non-Indian companies will be treated as domestic companies only if they make


the prescribed arrangements for the declaration and payment of dividends in
India.

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Indian Company – Sec. 2(26)
"Indian company" means a company formed and registered under the Companies
Act, 1956 and includes—
(i) a company formed and registered under any law relating to companies formerly
in force in any part of India, other than the State of Jammu and Kashmir and the
Union territories specified in sub-clause (iii) of this clause;
(ia) a corporation established by or under a Central, State or Provincial Act ;
(ib) any institution, association or body which is declared by the Board to be a
company under clause (17) ;
(ii) in the case of the State of Jammu and Kashmir, a company formed and registered
under any law for the time being in force in that State ;
(iii) in the case of any of the Union territories of Dadra and Nagar Haveli, Goa, Daman
and Diu, and Pondicherry, a company formed and registered under any law for
the time being in force in that Union territory
Provided that the registered or, as the case may be, principal office of the
company, corporation, institution, association or body in all cases is in India ;

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Foreign company – Section 2(23A)

2. Foreign company [Sec. 2(23A)]

“Foreign company" means a company which is not a domestic company.

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(iv) Firm – Sec. 2(23)

“Firm" shall have the meaning assigned to it in the Indian Partnership Act, 1932.
Includes a limited liability partnership as defined in the Limited Liability Partnership
Act, 2008.

“Partner" shall have the meaning assigned to it in the Indian Partnership Act, 1932.
Includes—
(a) any person who, being a minor, has been admitted to the benefits of partnership;
and
(b) a partner of a limited liability partnership as defined in the Limited Liability
Partnership Act, 2008.

“Partnership" shall have the meaning assigned to it in the Indian Partnership Act,
1932.
Includes a limited liability partnership as defined in the Limited Liability Partnership
Act, 2008.

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…(iv) Firm – Sec. 2(23)
• A partnership is
- the relation between persons
- who have agreed to share the profits of business
- carried on by all or any of them acting for all.

• The persons who have entered into partnership with one another are called
individually “partners” and collectively a “firm”.

• The Finance (No. 2) Act, 2009 has incorporated the taxation scheme of LLP’s in the
Income tax Act on the same lines as applicable for general partnerships, i.e. tax
liability would be attracted in the hands of the LLP and tax exemption would be
available to the partners.

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(v) Association of persons & Body of individuals

• In order to constitute an “Association of persons” –


- two or more persons
- must join in a common purpose
- and their object must be to produce income.

• It is not enough that the persons receive the income jointly.

• Co-heirs, co-legatees, co-donees joining together for a common purpose or action


would be chargeable as an AOP.

• Body of individuals denotes the status of persons like executors or trustees who merely
receive the income jointly and who may be assessable in like manner and to the same
extent as the beneficiaries individually.

• Income tax shall not be payable by an assessee in respect of the receipt of share of
income by him from BOI and on which the tax has already been paid by such BOI.

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(vi) Local authority & (vii) Artificial persons
• “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.

• “Artificial persons” would cover every artificial juridical person not falling under
other heads e.g. an idol or diety.

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Income – Sec. 2(24)

Section 2(24) defines the term “income”. The definition is an inclusive definition and
not exhaustive. Thus, it gives scope to include more items in the definition of income
as circumstances may warrant.

“Income” includes —

(1) Profits and gains

(2) Dividend

(3) Voluntary contributions received by a trust / institution created wholly or partly


for charitable or religious purposes or by an association or institution referred to
in section 10(21), or by a fund or trust or institution referred to in Section
10(23C)(iiiad) / (iiiae) / (iv) / (v) / (vi) / (via) or by an electoral trust.

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…Income – Sec. 2(24)

Section Entity
10(21) Research association approved u/s 35(1)(ii)
10(23C)(iiiad) Universities and other educational institutions
& (vi)
10(23C)(iiiae) Hospitals and other medical institutions
& (via)

10(23C)(iv) Notified funds or institutions established for charitable purposes

10(23C)(v) Notified trusts or institutions established wholly for public religious


purposes or wholly for public religious and charitable purposes

13B Electoral trust

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…Income – Sec. 2(24)

(4) The value of any perquisite or profit in lieu of salary taxable under clauses (2)
and (3) of Section 17.

(5) Any special allowance or benefit, other than perquisite included above,
specifically granted to the assessee to meet expenses wholly, necessarily and
exclusively for the performance of the duties of an office or employment of
profit.

(6) Any allowance granted to the assessee either to meet his personal expenses at
the place where the duties of his office or employment of profit are ordinarily
performed by him or at a place where he ordinarily resides or to compensate
him for the increased cost of living.

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…Income – Sec. 2(24)

(7) The value of any benefit or perquisite, whether convertible into money or not,
obtained from a company either by a director or by a person who has a
substantial interest in the company, or by a relative of the director or such
person, and any sum paid by any such company in respect of any obligation
which, but for such payment, would have been payable by the director or other
person aforesaid.

(8) The value of any benefit or perquisite, whether convertible into money or not,
obtained by any representative assessee under section 160(1)(iii) and (iv) or by
any beneficiary and any sum paid by the representative assessee in respect of
any obligation which, but for such payment, would have been payable by the
beneficiary.

(9) Deemed profits chargeable to income-tax under Section 41 or Section 59.

(10) Profits and gains of business or profession chargeable to tax under Section 28.

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…Income – Sec. 2(24)

(11) Any capital gains chargeable under Section 45.

(12) The profits and gains of any business of insurance carried on by a mutual
insurance company or by a co-operative society, computed in accordance with
Section 44 or any surplus taken to be such profits and gains by virtue of
provisions contained in the First Schedule to the Act.

(13) The profits and gains of any business of banking (including providing credit
facilities) carried on by a co-operative society with its members.

(14) Any sum received by the assessee from his employees as contributions to any
provident fund or superannuation fund or any fund set up under the provisions
of the Employees' State Insurance Act, 1948, or any other fund for the welfare of
such employees.

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…Income – Sec. 2(24)

(15) Any winnings from lotteries, crossword puzzles, races including horse races, card
games and other games of any sort or from gambling or betting of any form or
nature whatsoever.
Explanation.—For the purposes of this sub-clause,—
(i) "lottery" includes winnings from prizes awarded to any person by draw of
lots or by chance or in any other manner whatsoever, under any scheme or
arrangement by whatever name called;
(ii) "card game and other game of any sort" includes any game show, an
entertainment programme on television or electronic mode, in which people
compete to win prizes or any other similar game.

(16) Any sum received under a Keyman insurance policy including the sum allocated
by way of bonus on such policy.
Explanation.—For the purposes of this clause, the expression "Keyman
insurance policy" means a life insurance policy taken by a person on the life of
another person where the latter is or was an employee or is or was connected in
any manner whatsoever with the former’s business [Explanation to clause (10D)
of Section 10].

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…Income – Sec. 2(24)

(17) Any sum referred to in clause (va) of Section 28.


Thus, any sum, whether received or receivable in cash or in kind –
- under an agreement for
 not carrying out any activity in relation to any business; or
 not sharing any know-how, patent, copyright, trade mark, licence,
franchise or any other business or commercial right of a similar nature;
or
 not sharing any information or technique likely to assist in the
manufacture or processing of goods or provision of services.

(18) Any sum of money or value of property referred to in Section 56(2) (v), (vi), (vii)
or (viia).

(19) W.e.f. 1-4-2013 any consideration received for issue of shares as exceeds the fair
market value of the shares referred to in Section 56(2) (viib).

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…Income – Sec. 2(24)

(20) W.e.f. AY 2016-17, vide Section 2(24)(xviii), assistance in the form of a subsidy or
grant or cash incentive or duty drawback or waiver or concession or
reimbursement (by whatever name called) whether received from the Central
Govt. or State Govt. or any authority or body or agency.
The subsidy will be taxable whether it is received in cash or kind.
However, subsidy or grant or reimbursement which is taken into consideration
for determination of “actual cost” within the parameters of Explanation 10 to
Section 43(1) shall not be considered as income u/s 2(24)(xviii).
Examples :
1. A Co. gets subsidy from the Govt. to set up a chemical plant in a backward
area. Subsidy is not given for assisting it in carrying out the business
operations but the object of subsidy is to encourage setting up industries in
backward area. This receipt is a capital receipt – CIT v/s Reliance Indus. Ltd.
[2011] 339 ITR 632 (Mum). However, after the aforesaid amendment it will
be chargeable to tax.

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…Income – Sec. 2(24)

2. LPG subsidy received by consumers of LPG (directly in their bank account on


the basis of Aadhar card) or any other welfare subsidy received by
individuals are not covered by the aforesaid amendment – Press Release,
Government of India dated May 5, 2015. Consequently, scholarship or
reimbursement received by a student from a university or from a charitable
organisation is not covered by the aforesaid amendment.

3. Subsidy received by a manufacturing company from the Central Govt. to


acquire plant and machinery, will not be covered by the above provision, as
the amount of subsidy is deducted from the “actual cost” for the purpose of
claiming depreciation / investment allowance by virtue of Explanation 10 to
Section 43(1).

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…Income – Sec. 2(24)

Section 2(24)(xviii) has been amended w.e.f. AY 2017-18 to provide that subsidy or
grant by the Central Govt. for the purpose of the corpus of a trust or institution
established by the Central Govt. or State Govt. shall not form part of income.
However, the following are not covered by this amendment (i.e. in following cases,
grant or subsidy is treated as income in the hands of the recipient) –

1. Subsidy or grant by the Central Govt. for the purpose of corpus of a trust or
institution established by local authority.
2. Subsidy or grant by the State Govt. for the purpose of corpus of a trust or
institution established by the State Govt. or local authority.

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Capital v/s revenue receipts

• The Act contemplates a levy of tax on income and not on capital (unless specified
e.g. capital gains).

Criteria to distinguish between capital and revenue receipts

1. A receipt referable to fixed capital is a capital receipt, whereas a receipt referable


to circulating capital is a revenue receipt.

2. Profits arising from sale of a capital asset are chargeable to tax as capital gains u/s
45, whereas profits arising from sale of a trading asset is taxable as business
income u/s 28.

3. Profits arising from transactions which are entered into in the course of the
business regularly carried on by the assessee, or are incidental to or associated
with the business of the assessee, would be revenue receipts.

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…Capital v/s revenue receipts

4. Profits from sale of shares and securities – Nature of profit to be ascertained from
the motive or purpose for which they were bought.

If shares acquired as an investor or with a view to acquiring a controlling interest


or for obtaining a managing or selling agency – profit or loss on sale is of capital
nature.

If shares acquired in the ordinary course of business as a dealer in shares – profit


or loss on sale is of revenue nature.

5. Even a single transaction may constitute a business or an adventure in the nature


of trade. Thus a bulk purchase followed by a bulk sale or a series of retail sales
would constitute an adventure in the nature of trade and income arising
therefrom would be taxable.

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…Capital v/s revenue receipts

6. Annuities payable periodic intervals of time would be of a revenue nature.


Annuity received from an employer – taxable as “income from salaries”.
All other annuities – taxable as “income from other sources”.
Annual / installment payments of capital – capital receipts, not taxable.

7. A receipt in substitution of a source of income is capital receipt.


Compensation received for termination of agency business, being the only source
of income – capital receipt but taxable u/s 28(ii).
Compensation received from employer on premature termination of the service
contract – taxable u/s 15.

8. A lumpsum paid in commutation of salaries, pension, royalties or other periodic


payments – income taxable under the respective heads.

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…Capital v/s revenue receipts

9. Mining royalties – revenue receipts irrespective of whether received in lump sum


or by way of a fixed annual sum.

Royalties paid for use – taxable as income.

Payments received in lieu of total or partial assignment of patent under which the
owner ceases to own the patent as a capital asset – capital receipt.

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Assessment year – Sec.2(9)

“Assessment year" means the period of twelve months commencing on the 1st day of
April every year.

• The year in which tax is paid is called the assessment year, while the year in
respect of the income of which the tax is levied is called the previous year.

• For example for AY 2016-17, the relevant previous year is 2015-16 (1-4-2015 to 31-
3-2016).

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Previous year – Sec.3

“Previous year" means the financial year immediately preceding the assessment year.

• The income earned in the previous year is taxed in the assessment year.

• In the case of a business or profession newly set up during the financial year, the
previous year shall be the period beginning with the date of setting up of the
business or profession and ending with 31st March of the said financial year.

• If a source of income comes into existence, in the said financial year, the previous
year shall be the period beginning with the date on which the source of income
newly comes into existence and ending with 31st March of the said financial year.

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Basis of charge of dividends

Any income by way of dividends referred to in Section 115O is excluded from the total
income of the shareholder [Sec. 10(34)].

Under Section 115O –


- any dividend
- declared, distributed or paid
- by a domestic Company
- whether out of current or accumulated profits
- shall be charged an additional income tax - Corporate Dividend tax (15% grossed up) +
12% surcharge + 3% cess on tax + surcharge. Surcharge is applicable irrespective of the
quantum of dividend and the income of the company declaring dividend.
- in addition to normal income tax chargeable on the income of the company.

Corporate dividend tax is not leviable on deemed dividend u/s 2(22)(e). Hence, the same
will be taxed in the hands of the shareholder.

Dividends received from a company, other than a domestic company (e.g. foreign company)
is liable to tax in the hands of the shareholder.

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Tax on distribution of dividend under Section 115O

Distribution Surcharge Cess as a % Total as a %


tax as a % as a % of of of amount
of amount distribution distribution distributed
distributed tax tax and
surcharge
Tax on dividend u/s 115O 17.647 ** 12 3 20.357647
(not applicable in the
case of deemed dividend
u/s 2(22)(e)

** 15 / 85 of amount distributed

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