Professional Documents
Culture Documents
BASIC CONCEPTS
Learning Objectives
Taxes are basic source of revenue for government
thru which expenses of Govt. are defrayed.
Two types Direct & Indirect taxes.
Tax levied directly on income and wealth - called
as Direct Tax.
Income-Tax one of the Direct Taxes levy of Income
Tax is governed by Income Tax Act, 1961
BASIC CONCEPTS :
As we have seen Income Tax is levied on the total
income. the question is of which period. --- of the
previous year of every person.
Then what is Income ? It is defined under Sec 2(24)
of Income Tax Act, 1961
15. Gift as defined u/s 56 (2)(vi) (w.e.f. A.Y 20082009). Any sum of money exceeding ` 50,000,
received by an Individual or a HUF from any person
during the previous year without consideration on or
after 1.4.2007, then the whole of aggregate of such
sums will be taxable.
;
Assessment Year [Section 2 (9)]
1. Assessment Year means the period of twelve
months commencing on the 1st day of April every
year and ends on 31st March next year.
2. The year for which tax is paid on the income is
called Assessment Year.
Illustration : Assessment year 2012-13 would
commence on 1/4/2012 and end on 31/3/2013
Learning Objective
Income Tax is levied on taxable income of every
person.
So what is the basis on which Income Tax is charged
Basis of Charge:
Sec 4 of the Act is charging section.
A section in an Act, which imposes charge & is referred to as
charging section.
It is levied on the following basis:
of
Income
from
discontinued
CONCEPT OF INCOME
Income
i) periodical monetary return
Ii) some regularity
Exceptions :
Winnings from lotteries, cross-word puzzles.
Learning Objective
To determine taxable income, understanding the
residential status of the person for tax purpose is
important because - the basis for determination of
residential status varies person wise.
Residential Status
RESIDENTIAL STATUS OF AN INDIVIDUAL
UNDER INCOME TAX ACT, 1961
RESIDENT AND
ORDINARILY
RESIDENT
Sec 6(1)
(Satisfies any one
condition from 1
2 & 3)
NOT
ORDINARILY
RESIDENT
Sec 6(6)
(Satisfies any one
condition from 1
& 2)
NONRESIDENT
Sec 3 (30)
(Does not Satisfy
any condition
from 1 & 2)
Status
of
Individual
an Basic
Additional
condition condition/(s)
Resident
and Satisfies
ordinarily Resident
u/s 6(6)
Satisfies
conditions
Non Resident
both
HISTORY OF TAXES
Kalidas
Also prevalent in ancient communities
Origin of word Tax Meaning estimate.
POSITION IN INDIA
Direct Taxation in vogue Manu Smriti and
Arthashatra
Manu King could levy taxes according to
shahstras
He advocated that taxes should be levied related
to income and expenditure.
Caution absence of taxes or exorbitant taxes
Varodaya
Income Tax now became major source of revenue.
Equity and justice in taxation
Records were maintained by revenue collectors
Post-1922
Organizational history of Income Tax started in
the year 1922.
In 1939 two vital structural changes made
Tax reforms:
i) Policy reforms
ii) Administrative reforms
Settlement Commission - 1987
Restructuring of Income Tax 31/8/2000
HEADS OF INCOME
Learning objective:
i) Salaries
Ii) Income from house property
Iii) Profits and gains of business or profession
Iv) Capital Gains
V) Income from other sources
Illustration :
Rent from building property let out is chargeable to
tax under the head Income from House Property
However if the property is again sub-let by the tenant
Income derived by the tenent from sub-letting ---- is
chargeable under the head Income from Other
Sources
Illustration :
Claim for depreciation in computing a taxable income
in respect of assets used, is possible -------- only under the head profits and gains from business
and profession and not income from other sources
CASE LAWS
When there was a temporary suspension of business
with the object of tiding over the crisis condition and
during such period --the machinery, hitherto used in the business, is leased
out then the rental income there from is to be
identified as' business income'.
CIT vs. Vikram Cotton Mills Ltd 169 ITR 597
(SC)
Important ingredients
There should be employer-employee relationship
Either in the present or in the past
Between the person liable to pay the amount
And person entitled to receive the amount.
Illustrations:
Principal and Agent
Salaries of M.Ps and MLAs
Managing Director of Company
CIT v Navnitlal Sakarlal (2001) 247 ITR 70(SC)
3 categories:
I. Fully taxable cash allowances
II. Partially exempt cash allowances
III. Fully exempt cash allowances
c) Transport Allowance
An allowance granted to an employee working in a
transport system to meet his personal expenses in
performance of his duty in the course of running of
such transport from one place to another
is exempt upto 70% of such allowance or Rs.6000 per
month, whichever is less.
during
the
continuation
of
VALUATION OF PERQUISITES
The perquisites which are taxable in the hands of
employees are valued in accordance with the
provisions laid down under the Income Tax Rule 3.
These benefits can be provided to the employee or
member of his household.
Illustration :
Mr X, a Senior Officer in Delhi administration draws
Rs.20,000 per month as basic salary. The government
has provided him with a rent free unfurnished flat
whose market rent is Rs. 3000 per month, though as
per government rules, its licence fees is fixed at
Rs. 700 per month.
What is the value of perquisite in respect of rent
free accommodation.
Other Employees
The valuation of accommodation for this category
of non government employees
depends upon whether the accommodation given
to the employee is owned by the employer or taken
on lease.
1. Accommodation owned by employer
The value of accommodation is:
(i) 20% of salary in cities having population
exceeding four lakhs as per 1991 census.