Income Tax

By:
By: Ms.
Ms. Rachna
Rachna Thakkar
Thakkar
Assistant
Assistant Professor
Professor
SXCMT
SXCMT
What is Tax?
• Source of Revenue to the Government.

• Utilized for social welfare expenses of the nation.

 What are the type of Taxes
• Direct Taxes :
Collected on the Income or Wealth of a Tax Payer.

• Indirect Taxes:
Paid on the purchase of goods or services. Eg. GST,
Custom Duty.
 Utilization of Taxes
 To Spend on Defense of the nation like purchase of arms
and ammunition, salary and welfare expenses of soldiers
etc.

 To provide infrastructure facilities like water, electricity,

roads, etc.

 To spend on other social welfare causes.

 Income Tax
• The levy of income-tax in India is governed by the Income-
tax Act, 1961. We shall briefly refer to this as the Act.
• This Act came into force on 1st April, 1962.
• The Act contains 298 sections and XIV schedules.
• These undergo change every year with additions and
deletions brought about by the Finance Act passed by
Parliament.
• In pursuance of the power given by the Income-tax Act,
rules have been framed to facilitate proper administration
of the Income-tax Act.
 Income Tax Rule
• The administration of direct taxes is looked
after by the Central Board of Direct Taxes
(CBDT).
• The CBDT is empowered to make rules for
carrying out the purposes of the Act.
• For the proper administration of the Income-
tax Act, the CBDT frames rules from time to
time. These rules are collectively called
Income-tax Rules, 1962..
 LEVY OF INCOME-TAX
• Income-tax is a tax levied on the total income
of the previous year of every person.
• A person includes
• An individual,
• Hindu Undivided Family (HUF),
• Association of Persons (AOP),
• Body of Individuals (BOI),
• A firm,
• A company etc.
 Important Terms
• Income
• Person
• Assessee
• Assessment Year
• Previous Year
• Agricultural Income
• Exempted Income
• Residential Status- Resident ,Non-Resident
• Fringe Benefit
• TDS
 Income
• In case of individuals employed, salary or wages
earned is considered to be the primary source of
income.
• In businesses, the revenue received from the
core business functions after paying all expenses
or applicable taxes is the business income.
• To sum up, income is nothing but ones earning
received during a period. Generally, all incomes
are subjected to taxes in India.
 Taxable Income
• Income earned during a year by an individual or a business is categorized into five heads of income
and taxed accordingly.
• Five heads of income are as follows: - 
• Income from salary/pension: This includes basic salary, allowances, perquisites and profits in lieu of
salary earned by an individual. Pension income received by a retired individual is also included here.
• Income from business/profession: Any income earned or received by a business from the sale of
goods or services is called business or professional income. This income is subject to tax after
adjusting the expenses and allowable deductions.
•  Income from house property: Any income received from renting a house is included under house
property income.
•  Income from capital gains: Profit or gains from the sale of any capital asset such as land or building
is included here.
• Income from other sources: All those income not covered under the aforementioned heads of income
will be included here.
• Exempt or non-taxable income:
• There are certain income that are exempt from being
taxed. For instance, agricultural income is exempt
from taxes under Section 10 of the Income Tax Act."
 Person Sec. 2 (3 1)
• The term person includes the following:
• (i) an Individual;
• (ii) a Hindu Undivided Family (HUF);
• (iii) a Company;
• (iv) a Firm;
• (v) an Association of Persons (AOP) or a Body of Individuals (BOI), whether
incorporated or not;
• (vi) a Local authority; &
• (vii) every artificial juridical person not falling within any of the preceding categories.
 Individual
• The term ‘individual’ means only a natural person, i.e., a
human being. It includes both males and females.
• It also includes a minor or a person of unsound mind.
But the assessment in such a case may be made on the
guardian or manager of the minor or lunatic. In the case of
deceased person, assessment would be made on the legal
representative.
 Hindu Undivided Family
• A Hindu Undivided Family (on which Hindu law applies) consists
of all persons lineally descended from a common ancestor &
includes their wives & unmarried daughters. Tax point:
– Only those undivided families are covered here, to which
Hindu law applies. It also includes Jain and Sikh families.
– Once a family is assessed as Hindu undivided family, it will
continue to be assessed as such till its partition.
 Company Sec 2 (17)
• Company means:
a. any Indian company; or
b. any body corporate, incorporated under the laws of a foreign country; or
c. any institution, association or body which is or was assessable or was
assessed as a company for any assessment year on or before April 1, 1970; or
d. 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 Central Board of Direct Taxes to be a company.
 Indian Company
• An Indian company means a company formed & registered under
the Companies Act, 1956 & includes
a. 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 & Kashmir and the Union territories specified in (c) infra;
b. a company formed and registered under any law for the time
being in force in the State of Jammu & Kashmir;
 a company formed and registered under any law for the time being in force
in the Union territories of Dadar & Nagar Haveli, Goa, Daman & Diu and
Pondicherry;
d. a corporation established by or under a Central, State or Provincial Act;
e. any institution, association or body which is declared by the Central
Board of Direct Taxes (CBDT) to be a company u/s 2(17).
In the aforesaid cases, a company, corporation, institution, association or body
will be treated as an Indian company only if its registered office or principal
office, as the case may be, is in India.
 Domestic Company
• Domestic company means:
i) an Indian company; or
ii) any other company, which in respect of its income liable
to tax under the Act, has made prescribed arrangements for
the declaration and payment of dividends (including
dividend on preference share), payable out of such income,
within India
 Firm
• As per sec. 4 of Indian Partnership Act, 1932, partnership means
“relationship between persons who have agreed to share profits
of the business carried on by all or any one of them acting for all”.
• Persons, who enter into such business, are individually known as
partners and such business is known as a Firm. A firm is, though
not having a separate legal entity, but has separate entity in the
eyes of Income-tax Act
• A , B, C = friends= Business = 5 L, 3 L, 2 L =6:2:2 = 1:1:1
Association of Persons or Body of Individuals
• An AOP means a group of persons (whether individuals, HUF,
companies, firms, etc.) who join together for common
purpose(s). Every combination of person cannot be termed as
AOP. It is only when they associate themselves in an income-
producing activity then they become AOP. Whereas, BOI
means a group of individuals (individual only) who join
together for common purpose(s) whether or not to earn
income.
• Co-heirs, co-donees, etc joining together for a
common purpose or action would be chargeable as
an AOP or BOI. In case of income of AOP, the AOP
alone shall be taxed and the members of the AOP
cannot be taxed individually in respect of the income
of the AOP
 Difference between AOP & BOI
• In case of BOI, only individuals can be the members, whereas
in case of AOP, any person can be its member i.e. entities like
Company, Firm etc. can be the member of AOP but not of
BOI.
• In case of an AOP, members voluntarily get together with a
common will for a common intention or purpose, whereas in
case of BOI, such common will may or may not be present.
 Local Authority
• As per Sec. 3(31) of the General Clause Act, a local
authority means a municipal committee, district
board, body of Port Commissioners, Panchayat,
Cantonment Board, or other authorities legally
entitled to or entrusted by the Government with the
control and management of a municipal or local fund.
 Artificial Judicial Person
• Artificial juridical person are entities –
• which are not natural person;
• has separate entity in the eyes of law;
• may not be directly sued in a court of law but they
can be sued through person(s) managing them E.g:
Deities, Idols, University, Bar Council, etc.
Identify the status of following
Case Status
Howrah Municipal Corporation
Corporation Bank Limited
Mr. Anil Sharma
Anil Sharma Corporation Ltd
A joint family of Sri Ram, Smt. Rani, & their son Ramesh & Ravi
Calcutta University
X and Y who are legal heirs of Z
Sole Proprietor Business
Partnership Business
 Assessee Sec .2 (7)
• “Assessee” means,
a. a person by whom any tax or any other sum of money (i.e., penalty
or interest) is payable under this Act (irrespective of the fact whether
any proceeding under the Act has been taken against him or not);
b. every person in respect of whom any proceeding under this Act
has been taken (whether or not he is liable for any tax, interest or
penalty) for the assessment of his income or loss or the amount of
refund due to him;
 Assessment Year (Sec. 2(9))
• Assessment year means the period of 12 months
commencing on the 1st day of April every year. It is the
year (just after the previous year) in which income earned
in the previous year is charged to tax. E.g., A.Y.2019-
20 is a year, which commences on April 1, 2019 and ends
on March 31, 2020. Income of an assessee earned in the
previous year 2018-2019 is assessed in the A.Y. 2019-20.
 Tax Point
■ Duration: Period of 12 months starting from 1st April.
■ Relation with Previous Year: It falls immediately after
the Previous Year.
■ Purpose: Income of a previous year is assessed and
taxable in the immediately following Assessment Year.
 Previous Year
• Previous Year means the financial year immediately
preceding the Assessment Year. Income earned in a year is
assessed in the next year. The year in which income is earned
is known as Previous Year and the next year in which income
is assessed is known as Assessment Year. It is mandatory for
all assessee to follow financial year (from 1st April to 31st
March) as previous year for Income-Tax purpose.