CONCEPT OF INCOME TAX

INCOME
• Income is the money an individual receives in compensation for their work, services, or
investments. For businesses, Income means revenue that a business generates by selling
its goods and services. Revenue is the money earned by a company from selling goods or
services throughout its operations.
• The definition and explanation of income are given in
• 2(24) of the Income Tax Act, 1961. Income under Indian Tax law encompasses every
aspect of Gross Income, including all sources of revenue, and taxable income, which is.
gross income minus expenses and other adjustments Income from all sources and in any
form, for example, money and property, is derived, adjusted, and lowered by permissible
deductions. It’s the amount of money that’s susceptible to income tax.
 PERMISSIBLE DEDUCTIONS

• Individuals can claim tax deduction benefits for payments made towards life insurance policies,
fixed deposits, superannuation/provident funds, tuition fees, and construction/purchase of
residential properties under Section 80C of the Income Tax Act.
 INCOME TAX OVERVIEW

• Income Tax is undoubtedly the most crucial source of revenue for the Indian
Government. Hence, it is established as an inevitable imposition on the citizens
in order to raise funds for fulfilling the development & defence needs of the
country.

• Taxes imposed on income, purchase, sale, and property help the Government run
different government embodiment and machinery.
• In India, the first Income Tax Act was introduced in 1860. It was implied by James Wilson to
overcome heavy losses suffered by the British Government due to India's freedom movement in
1857. The history of Income Tax in India is divided into 3 different periods:
• 1860-1885
• 1886-1914
• 1914 till date
• Currently, the Income Tax Act 1961 is applicable in India. In 1956, the Government referred to
the request to impose Income Tax Act. The Law Commission further submitted its report on the
Income-tax Act in 1958, and the same year, Chairman Shri Mahavir Tyagi chaired the Direct
Taxes Administration inquiry Commission.
• The Income Tax Act 1961 was introduced to the public. Since then, it has undergone
amendments from time to time.
 TAX LAWS IN INDIA

• Wealth Tax Act, 1957 was repealed in the year 2015.

• Direct Taxes in India were governed by two major legislations, Income Tax Act,
1961 and Wealth Tax Act, 1957. A new legislation, Direct Taxes Code (DTC),
was proposed to replace the two acts.[when?] However, the Wealth Tax Act was
repealed in 2015 and the idea of DTC was dropped.
• The Central Government enacted the Income Tax Act, of 1961.
• The Act provides for the scope and machinery for the levy of Income Tax in India.
The Act is supported by Income Tax Rules, 1961 and several other subordinates and
regulations.
• circulars and notifications are issued by the Central Board of Direct Taxes (CBDT)
and sometimes by the Ministry of Finance, Government of India dealing with various
aspects of the levy of Income tax.
• Income tax is a tax on the total income of a person called the assesses of the previous
year relevant to the assessment year at the rates prescribed in the relevant Finance
Act.
 INCOME TAX RETURN (ITR)
• Is a form which a person is supposed to submit to the Income Tax
Department of India.
1. It contains information about the person’s income and the taxes to
be paid on it during the year.
2. Information filed in ITR should pertain to a particular financial
year, i.e., starting on 1st April and ending on 31st March of the
next year.
• INCOME CAN BE OF VARIOUS FORMS SUCH AS:
1. INCOME FROM SALARY PROFITS AND GAINS FROM BUSINESS
2. PROFESSIONAL INCOME FROM HOUSE PROPERTY
All the properties are taxable be they commercial or residential. If the property is
used for the residential purpose it is taxed under income from house property. On
the other hand, if the property is used for business or profession then it is
considered as income from business or profession.
3. INCOME FROM CAPITAL GAINS
4. INCOME FROM OTHER SOURCES SUCH AS DIVIDENDS, INTEREST ON
DEPOSITS, ROYALTY INCOME, WINNING ON THE LOTTERY, ETC.
 ASSESSMENT YEAR – S. 2(9)

• Section 2(9) defines an “Assessment year” as “the period of twelve months starting from the first
day of April every year.” An assessment year begins on 1st April every year and ends on 31st
March of the next year.
• For example, Assessment year 2022-23In an assessment year, income of the assesses during the
previous year is taxed at the rates prescribed by the relevant Finance Act. It re, also called as the
“Tax Year”(A Finanancial
• legislation enacted by the Indian Parliament to give effect to the financial proposals
of the Central Government.)
• during which income of a person relating to the relevant previous year is assessed to tax.
• “Every person who is liable to pay tax under this Act. Files return of income by
prescribed dates. These returns are processed by the income tax department
officials and officers. This processing is called assessment.”
• Tax is calculated and compared with the amount paid and an assessment order is
issued. The year in which the whole of this process is undertaken is called the
assessment year.
 PREVIOUS YEAR- S. 2(34) & S. 3

• Definition:
• Section 3 defines “Previous year” as “the financial year immediately preceding the assessment year”.
• Income earned in one financial year is taxed in the next financial year.
• The year in which income is earned is called the “previous year” and the year in which it is taxed is
called the “assessment year” Common previous year for all source of income: A person may earn
income from more than one sources but previous year will always be common for all the sources
of income. This will be so even if a person maintains records or books of accounts separately for
different sources of income.
• Total income of a person from all the sources of income will be taken together and considered in the
previous year or the financial year immediately preceding the assessment year.
 ASSESSEE
•  ASSESSEE is one upon whom a payment is assessed.
•  a person or group that is being assessed (= judged), especially in order to decide how much tax
they must pay: The form must be filled out by every assessee on a yearly basis.
 SECTION 2(7) IN THE INCOME- TAX ACT, 1995

• (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 of the income of any other person in respect of
which he is assessable, or of the loss sustained by him or by such other person, or of 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;
• Different types of assesses as per the income tax act 1961 are:-

• Individual - Ayush, Tarun

• Partnership Firm - M/s ABC and Company, M/s ABC and associates, ABC LLP
• A Hindu Undivided Family - Mr A (HUF) or Mr B (HUF).
• Company - Winiin Taxscope Private Ltd., Winiin Taxscope Ltd.
• An Association of persons or a body of Individuals - ABC Sangh or XYZ Dal
• A Local Authority - JDA or PCMC Municipal Corporation.
• Artificial Juridical person not covered under any of the above categories. (Residual Category).
 PERSON –SECTION 2(31) THE TERM
“PERSON” INCLUDES:
• The term ‘person’ as defined under the Income-tax Act covers in its ambit natural
as well as artificial persons, i.e. apart from a natural person/ individual, any sort of
artificial entity will also be liable to pay Income-tax.
The Term “Person” Includes:
1) An Individual
2) A Hindu Undivided Family
3) A Company
4) A Firm
5) An Association of persons(AOP) or a Body of Individuals,(Bol) whether incorporated or not
6) A local authority; and every artificial judicial person not falling within any of the preceding
categories
• These are seven categories of persons chargeable to tax under the
Act. The aforesaid definition is inclusive and not exhaustive.
Therefore, any person, not falling in the abovementioned seven
categories, may still fall within the four corners of the term “person”
and accordingly may be liable to tax.