Income Tax

Basic concepts and terms

Person includes :

an individual ;
a Hindu undivided family ;
a company ;
a firm ;
an association of persons or a body of individuals, whether
incorporated or not ;
a local authority
every artificial juridical person, not falling within any of the preceding
categories.
Some more basic concepts
Previous Year
Assessment Year
Income
Revenue and Capital
Heads of Income
Gross Total Income
General Deductions (Sec. 80)
Method of Accounting
Capital or revenue expense-General Principles
Acquisition of fixed assets v. Routine expenditure - Capital expenditure is incurred in acquiring,
extending or improving a fixed asset, whereas revenue expenditure is incurred in the normal
course of business as a routine business expenditure.
Several previous years v. One previous year - Capital expenditure produces benefits for several
previous years, whereas revenue expenditure is consumed within a previous year.
Improvements v. Maintenance - Capital expenditure makes improvements in earning capacity of
a business. Revenue expenditure, on the other hand, maintains the profit-making capacity of a
business.
Non-recurring v. Recurring - Usually capital expenditure is a non-recurring outlay, whereas
revenue expenditure is normally a recurring outlay.
Lump sum payment v. Periodic payment - In order to determine whether an expenditure is
capital or revenue in nature, the fact that it is a lump sum payment or periodic payment is not
important.
Expenditure out of capital v. Expenditure out of revenue - For determining whether expenditure
is of capital or revenue nature, it is immaterial whether expenditure is made out of money
withdrawn from capital or out of profits.
Tax Planning

Arrangement of financial and economic affairs by complete legitimate

benefits of available deductions, exemptions, etc. so that tax liability
is minimized.
Full compliance of tax laws
All legal obligations and transactions met
No colourable devices (letter of law: yes, spirit of law: no)
No intention to deceive
Tax Avoidance
Reducing or negating tax liability in legally permissible ways
Letter of law is followed
Lawful but with mala fide intention
Advantage of lacunae/loopholes in law
Tax Evasion
Tax liability is illegally avoided
Letter and spirit of law not followed
Unlawful and with mala fide intention/intention to deceive
Untrue statements, misleading documents, suppression of facts, not
maintaining proper accounts, etc.
Heads of Income
Income from Salary
Income from house property
Profits and Gains from business or profession
Capital gains
Income from other sources
Flow of Income
Gross Income from each head
GTI Less: Specific deductions under each head

Less: General deductions ( section 80)

Deductions

Total income / taxable income /

TI net total income
Residential Status (Individual)
An individual is said to be resident in India in any previous year, if he
satisfies at least one of the following basic conditions:
(a) He is in India in the previous year for a period of 182 days or more.
(b) He is in India for a period of 60* days or more during the previous
year and 365 days or more during 4 years immediately preceding the
previous year.
Residential Status (Individual)
a resident individual is treated as resident and ordinarily resident in
India if he satisfies the following two additional conditions
a) He has been resident in India in at least 2 out of 10 previous years
[according to aforementioned basic condition] immediately
preceding the relevant previous year.
b) He has been in India for a period of 730 days or more during 7 years
immediately preceding the relevant previous year.
 Residential Status of a Company

Control and Indian Other than

management Company Indian
Company

Wholly in India resident resident

Wholly outside resident Non resident

India
Partly in India resident Non resident
 Incidence of tax for Individuals:

Resident and Resident but not Non-resident

ordinarily resident ordinarily resident

Indian Income Taxable Taxable Taxable

Foreign Income

- Business income : Taxable Taxable Not taxable

wholly/partly
controlled from
India
- Business income : Taxable Not taxable Not taxable
controlled from
outside India

Any other foreign Taxable Not taxable Not taxable

income (like
salary, rent, interest,
etc.)
 Companies:

Resident Non resident

Indian Income Taxable Taxable

Foreign Income Taxable Non taxable

Tax Slabs
Individuals, below age of 60 years

Income Range Tax rate

Upto Rs. 2,50,000 Nil
Rs. 2,50,001 to 5,00,000 5%
Rs. 5,00,001 to 10,00,000 20%
Above Rs. 10,00,000 30%
Tax Slabs
Individuals, aged 60 to 80 years

Income Range Tax rate

Upto Rs. 3,00,000 Nil
Rs. 3,00,001 to 5,00,000 5%
Rs. 5,00,001 to 10,00,000 20%
Above Rs. 10,00,000 30%
Tax Slabs
Individuals, aged 80 and above

Income Range Tax rate

Upto Rs. 5,00,000 Nil
Rs. 5,00,001 to 10,00,000 20%
Above Rs. 10,00,000 30%

In all cases, edu. cess @ 3%,

Surcharge of 10% for income between 50 lakhs and 1 crore
surcharge of 15% for income over 1 crore