Professional Documents
Culture Documents
According to Black's Law Dictionary, a tax is a "pecuniary burden laid upon individuals or
property owners to support the government a payment exacted by legislative authority." It
"is not a voluntary payment or donation, but an enforced contribution, exacted pursuant to
legislative authority" and is "any contribution imposed by government whether under the
name of toll, tribute, tallage, gabel, impost, duty, custom, excise, subsidy, aid, supply, or
other name."
The legal definition and the economic definition of taxes differ in that economists
do not consider many transfers to governments to be taxes. For example, some transfers to
the public sector are comparable to prices. Examples include tuition at public universities
and fees for utilities provided by local governments. Governments also obtain resources by
creating money (e.g., printing bills and minting coins), through voluntary gifts (e.g.,
contributions to public universities and museums), by imposing penalties (e.g., traffic
fines), by borrowing, and by confiscating wealth. From the view of economists, a tax is a
non-penal, yet compulsory transfer of resources from the private to the Public sector levied
on a basis of predetermined criteria and without reference to specific benefit received.
In modern taxation systems, taxes are levied in money; but, in-kind and corve
taxation are characteristic of traditional or pre-capitalist states and their functional
equivalents. The method of taxation and the government expenditure of taxes raised is
often highly debated in politics and economics. Tax collection is performed by a
government agency such as Canada Revenue Agency, the Internal Revenue Service (IRS)
in the United States, or Her Majesty's Revenue and Customs (HMRC) in the United
Kingdom. When taxes are not fully paid, civil penalties (such as fines or forfeiture) or
criminal penalties (such as incarceration) may be imposed on the non-paying entity.
Types of Tax
Taxes on income
Income tax
Many jurisdictions tax the income of individuals and business entities, including
corporations. Generally the tax is imposed on net profits from business, net gains, and
other income. Computation of income subject to tax may be determined under accounting
principles used in the jurisdiction, which may be modified or replaced by tax law principles
in the jurisdiction. The incidence of taxation varies by system, and some systems may be
viewed as progressive or regressive. Rates of tax may vary or be constant (flat) by income
level. Many systems allow individuals certain personal allowances and other non-business
reductions to taxable income.
Personal income tax is often collected on a pay-as-you-earn basis, with
small corrections made soon after the end of the tax year. These corrections take
one of two forms: payments to the government, for taxpayers who have not paid
enough during the tax year; and tax refunds from the government for those who
have overpaid. Income tax systems will often have deductions available that lessen
the total tax liability by reducing total taxable income. They may allow losses from
one type of income to be counted against another. For example, a loss on the stock
market may be deducted against taxes paid on wages. Other tax systems may isolate
the loss, such that business losses can only be deducted against business tax by
carrying forward the loss to later tax years.
Corporate tax
Corporate tax refers to income, capital, net worth, or other taxes imposed on
corporations. Rates of tax and the taxable base for corporations may differ from
those for individuals or other taxable persons.
The lesson intends to explain one of the most important and complex heads of income in
simple terms beginning from the basic concepts of business, profession, vocation, trade,
commerce, manufacture. It also covers the computation of taxable profit and gains of
business and profession, various general and specific deductions including depreciation
allowable and items not allowed as deduction to the extent contained in Sections 28 to 32,
35, 36 , 37, 40, 40A, 43 B
Section 13, includes profits and gains of business and profession in the list of heads of
income, hence the Business and Profession become the two significant terms. Business
is defined in Sec. 2 (13) in an inclusive definition that Business includes any trade,
commerce, manufacture or any adventure or concern in the nature of trade, commerce or
manufacture and profession is defined in section Sec. 2((36), which merely says that
profession" includes vocation;
A collective reading of the three sections implies that business means a business as it is
commonly understood and it also includes Trade, Commerce, Manufacture and any
adventure in the nature of trade, commerce or manufacture. Similarly a profession means
a profession in common parlance and also includes a vocation. Trade, commerce and,
business refer to normal commercial activities of dealing or trading in goods or services for
profit. Producing new goods or articles will constitute manufacture. Profession covers the
skilled Personalised services like doctors, architects, lawyers, chartered accountants form
the profession and vocation will include all the other services even priests, astrologers,
plumbers, mechanics, delivering discourse, performing pooja etc . Importantly, the phrase
adventure in the nature of trade, commerce or manufacture indicates that business or
profession need not be organised, systematic or regular. A single act may be treated as the
business or profession. Accordingly, when a land was purchased developed and subdivided
in smaller plots for resale was held as an adventure in the nature of trade or commerce or
manufacture.
Sections 28 to Sec 44D deal with various aspects of business income. Sec. 28 is the
charging section, which defines what constitutes business income and Sec. 29 provides for
mode of computation of business income by deducting expenses from income.
Sections, 30 to 35 cover expenses allowed to be deducted only by some of the businesses,
which are expressly allowed as deduction and sections 36 and 37 deal with general
deductions allowed to all the businesses.
Sections 40, 40A and 43B cover expenses which are not deductible in certain
circumstances
Lately, business profits are computed on presumptive basis in case of smaller assessees like
retailers, construction contractors, transporters etc. these provisions are not covered in the
syllabus.
3.2.
Section 28 defines the scope of business to inter alia include the income from following
sources:
The profits and gains of any business or profession which was carried on by the assessee at
any time during the previous year;
Speculation income treated as separate and distinct source. Speculative transactions are
defined to be the transactions settled by payment of difference in price of goods or
securities and not by actual delivery. Loss from this head cannot be set off against any
other head of income but carried forward for 8 years.
Compensation for agency termination etc
Export incentives: cash assistance, duty drawback, DEPB etc.
Profits on sale of import licences
Income derived by a trade, professional or similar association from specific services
performed for its members;
Partners remuneration from a firm by way of salary fees , commission etc
Value of any benefit or perquisites like gifts whether in cash or kind
Non-compete agreements
Any sum received under a Keyman insurance policy including the sum allocated by way of
bonus on such policy.
Amount recovered on account of bad debts allowed in the earlier years.
Profits on sale of capital assets if used for scientific research and allowed in the earlier
years.
General Deductions S. 37
All the expenses, which are not covered by any other section will be allowed as a
deduction under section 37 subject to conditions mentioned below section 37(1):
The expenses are not covered specifically under the provisions of section 30 to 36.
The expenses are not personal in the nature. Personal income tax, wealth tax, drawings, etc
are held to be personal in nature The expenses are not in the nature of capital expenditure.
Thus expenses for acquiring fixed assets, or renovation thereof, conveyance of land,
expenses for eviction of a tenant etc are some examples of capital expenses not allowable.
The expenses are incurred wholly and exclusively for the purpose of such business. Such
expenses should be incurred in the previous year only. The expense should be in respect of
a business carried on by the assessee and the profits of which are to be computed and
assessed and should be incurred after the business set up. Any illegal expenses are not
allowed. Thus penalty, bribery, composition money paid in respect of any offences or
breach of law, and even penal interest is held to be not allowable under this section.
Political advertisements have been specifically excluded from the purview of the section -.
S. 37(2B) All the expenses whether by way of cost of raw materials, tools, spares etc, cost
of labour, salary , brokerage, commission, legal fees, litigation expenses, professional tax,
trade mark registration , lease rent etc and various expenses incurred by the assessee will
be allowed to be deducted under this section.
From the above it follows that if TDS has not been collected or paid at all , the relevant
expenditure will not be allowed altogether but if the TDS is paid before the due date of
fling the return , it will be allowed as a deduction in that year. However , if at a later date,
tax on such amounts is paid or deducted at source such amounts will be allowed as
deduction in the year in which the tax has been paid or deducted. Any sum paid on account
of securities transaction tax
[S. 40(a)(ib)]:
4.Any sum paid on account of any rate or tax levied on the profits or gains of any business
or profession or assessed at a proportion of, or otherwise on the basis of, any such profits
or gains such as Income Tax, interest and penalty; Fringe Benefit Tax etc
[S. 40(a) ( ii )]
Any sum paid on account of wealth-tax. [S. 40(a) ( iia )]
Salary payable outside India; or to a non-resident, and if the tax has not been deducted or
deducted and has not been paid therefrom under Chapter XVII-B. However such salaries
will be allowed as a deduction in the year in which the tax has been paid in respect of the
salary.
[S. 40(a) ( iii )]
Any payment to a provident or other fund established for the benefit of employees of the
assessee, unless the assessee has made effective arrangements to secure that tax shall be
deducted at source from any payments made from the fund which are chargeable to tax
under the head Salaries. Such payment will not be allowed as a deduction if tax has not
been deducted in the year in which such payments have been made. However these
payments will be allowed as a deduction in the year in which tax has been paid
.[S.40(a) (iv)
Any tax actually paid by an employer on perquisites u/s10 (10CC)-[S. 40(a) ( v )]
any payment of remuneration to any partner who is a working partner, which, in either
case, is not authorised by, or is not in accordance with, the terms of the partnership deed; or
Remuneration, to working partner though authorised, relating to any period falling prior to
the date of such partnership deed or Remuneration, to working partner though authorised
and otherwise allowable, if the remuneration to all partners in aggregate exceeds the
following limits:
Book Profits
Remuneration allowable
or
90
of
on
the
bookprofit
Book-profit means the net profit, as shown in the profit and loss account for the relevant
previous year, computed in the manner laid down in Chapter IV-D as increased by the
aggregate amount of the remuneration paid or payable to all the partners of the firm if such
amount has been deducted while computing the net profit. In other words Book Profit
means net profit before providing for remuneration to partners. Working partner means
an individual who is actively engaged in conducting the affairs of the business or
profession of the firm of which he is a partner. A non-working partner is one who is not a
working partner.
Remuneration means any payment of salary, bonus, commission or remuneration by
whatever name called.
2. Disallowance of Interest to Partners-S. 40(b)
Any payment of interest to any partner which is not authorised by or is not in accordance
with, the terms of the partnership deed; or Interest, to partner thought authorised, relating
to any period falling prior to the date of such partnership deed or Interest in accordance
with the deed of partnership but in excess of the amount calculated at the rate of twelve per
cent simple interest per annum;
Class of assessee
Specified person
Individual
Company
Firm
Association of Persons
Individual
Company
Firm
Association of Persons
Where in respect of any expenditure, payment exceeding Rs. 20,000 (Rs. 35,000 in cases
of payments made for plying, hiring or leasing goods carriages) during a single day is made
otherwise than by way of crossed bank cheque or draft; whole of this expenditure will be
disallowed.
approved provident/gratuity funds etc. However bonafide expenditure out of such fund
may be allowed if actually spent S.40 (10). Further u/s S.40 (11) assessee will be entitled to
receive back the unutilised part of any such fund/assets.
RESIDENTIAL STATUS S6
Classification of persons:
Provisions for determination of the residential status are different
for different categories of the assessee viz:
a) individuals;
b) Hindu Undivided Families(HUF
c) Firms or Associations ofPersons(AOP);
d) Companies;and
e) Every otherperson
ii.
NonResident
SUMMARY
From the above discussion it is brought out that an individual can
eitherbe:
(a) resident and ordinarily resident inIndia;
(b) resident but not ordinarily resident in India or
(c)non-resident
Resident
Residentand
OrdinarilyResident
(ROR)
Non- Resident(Nr)
Resident butNot
OrdinarilyResident
(RNOR)
Figure1
will
Illustration-1:
i)
Mahesh comes to India, for the first time, on April 16, 2009. He
stays in Chennai up to April 10, 2011 and thereafter shifts to
Mumbai. He departs from Mumbai for his native country
on
.Solution:
As Mahesh was in India for 185 days* from April, 1, 2011 to
October 2, 2011, which is 182 days .he satisfies the first condition
u/s 6(1) of staying in India for 182 days or more during the
previous year 2011-12, he is a resident inIndia
Month/2011 April May J u n e July A u g u s t S e p t O c t . Total
D a y s
0
1
0
1
3
1
0
185
In the previous year 2009-10, Mahesh was in India for 350 days
from 16/04/2009 to 31/03/2010 and in the subsequent year 2010-11
, he was in India for the whole year. As result Mahesh was resident
in India for these two years. Hence he fulfills the first additional
condition under Section 6(6) that he must be a resident in India in
at least two year out of the ten preceding year i.e. from 2001-02 to
2010-11.
But Mahesh was in India for a period of 715 days only [350 days
in 2009-10 and 365 days in 2010-11] which is less than 730 days
stay required in the seven preceding year from 2004-05 to 2010-11
as per the second additionalcondition.
Solution:
Illustration -3:
What will be the position in the above case, if Venkat leaves India
Solution:
Venkat will be Resident and Ordinarily Resident of India as he
satisfies the second basic condition u/s 6(1) of 365 days stay in the
preceding four years and 60 days stay during 2011-12 and also the two
additional condition of section 6(6), as being a person born in India,
Venkat satisfies both the additional conditions of being resident in India
for two years in preceding 10 years and stay of
preceding years
The lesson is divided into various sections dealing with the concept
of salary income and its characteristics, which define as to what
constitutes salaries followed by the incomes falling under this head the
computation of basic salary, types of allowances and perquisites, valuation
of the perquisites, various income tax provisions for computing taxable
value of allowances etc and their detailed descriptions along with the
applicable legal provisions of incometax.
Salary includes:
a. Wages;
b. Any Pension orAnnuity;
c. AnyGratuity;
d. Any fees, commission, perquisites or profits in lieu of or in
addition to salary orwages;
e. Any advance ofsalary;
f. Any encashment of leavesalary;
g. Annual
accreditation
to
provident
fund
above
the
The term salary" includes not only the basic salary but also Fees,
Commission, Bonus, taxable value of cash allowances and perquisites,
Retirement Benefits, encashment of leave salary, advance of salary,
arrears of salary, various allowances such as dearness allowance,
entertainment allowance,
house
rent
allowance,
conveyance
allowance and also includes perquisites by way of free housing, free car, free
schooling for children of employees, etc.
FORM NO.16
[See rule 31(1)(a)]
PART A
Certificate under section 203 of the Income-tax Act, 1961 for tax deducted
at source on salary
Certificate No. ZTIYHZI
Name and address
of
Employer
LIC BR.890 MALAD GR
FLOOR, HEMU CLASSIC BLDG,
MAHARASHTRA
+(91) 9768832877
TAN of the Deductor
PAN of
PAN of the Deductor
Employee Reference
the
No. provided by
Emplo
the Employer
yee
(If available)
MUML04671C
BWDPM0842C
Assessment Year Period with the Employer
AAACL0582H
CIT (TDS)
From
To
01/04/2014 31/03/2015
2015-16
deducted
aid/credited
( Rs. )
Amount of
tax deposited/
remitted
(Rs. )
se ction (3) of
section 200
Total (Rs.)
263264
24000
24000
Tax
Deposited in
respect of
the deductee
( Rs. )
in Form No.
Form
24G
No. 24G
transfer
matching
Total
( Rs. )
II. DETAILS OF TAX DEDUCTED AND DEPOSITED IN THE CENTRAL GOVERNMENT
ACCOUNT THROUGH CHALLAN
(The deductor to provide payment wise details of tax deducted and deposited with
Sl. No.
Tax
Deposited in
respect of
the deductee
1.
Total (Rs )
( Rs. )
24000
deposited
(dd/mm/yyyy)
Status of
Serial
matching
Number
with
OLTAS
63903777
31/08/2015
0003
YES
24000
Verification
credit of the Central Government. I further certify that the information given above
is true, complete and correct and is based on the books of account, documents, TDS
statements, TDS deposited and other available records.
Mumbai
Place
26/08/2015
Date
Notes:
1 Government deductors to fill information in item I if tax is paid
without production of an income-tax challan and in item II if tax is
paid accompanied by an income-tax challan.
2 Non-Government deductors to fill information in item II.
3 The deductor shall furnish the address of the Commissioner of
Income-tax (TDS) having jurisdiction as regards TDS statements
of the assessee.
4 If an assessee is employed under one employer only during the
year, certificate in Form No. 16 issued for the quarter ending on
31st March of the financial year shall contain the details of tax
deducted and deposited for all the quarters of the financial year.
5 If an assessee is employed under more than one employer during
the year, each of the employers shall issue Part A of the
certificate in Form No. 16 pertaining to the period for which such
assessee was employed with each of the employers. Part B
(Annexure) of the certificate in Form No.16 may be issued by
each of the employers or the last employer at the option of the
assessee.
6 In items I and II, in column for tax deposited in respect of
deductee, furnish total amount of TDS and education cess.
PART B (Annexure)
Details of Salary paid and any other income and tax deducted
1
Gross Salary
(a)
Rs.526888
Rs.
Value of perquisites u/s 17(2) (as per Form
(b)
Rs.
Rs. 526888
Total
Rs.
Rs. 6400
Transport Allowance
6400
Rs.
5204
Balance(1-2)
Deductions :
88
(a)
Entertainment allowance
Rs.
(b)
Tax on employment
Rs. 1700
5
6
5)
Add: Any other income reported by the
Rs. 1700
Rs. 518788
employee
Income
Interest on Housing Loan
Rs.
126000
Rs. 126000
Rs. 644788
section 80C
PPF
Rs.12000
Rs.
Rs.138081
Rs. Rs.
Insurance Premium
iii
.
.
Rs.
Rs. 150081
.
vii
.
b
section 80CCC
section 80CCD
Chapter VI-A.
Gross amount
(i)
Qualifying
Deductible amount
amount
Rs. 8370
Rs. 8370
Rs.
Rs.
(ii)
section..
Rs.
(iii)
section..
Rs.
(iv)
section..
Rs.
Rs.
(v)
section..
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Rs. 158370
Rs. 486420
Rs. 21642
Rs. 649
Rs. 22291
Rs
Rs. 22291
Rs. 24000
Verification
Mr.Rohit Lalan Mourya, son/daughter of Lalan Mourya working in the capacity of Agency Manager (designation) do
hereby certify that the information given above is true, complete and correct and is based on the books of account,
documents, TDS statements, and other available records.
Place
Mumbai
Date
26/08/2015
(Signature of person responsible for deduction of tax)
Sections: 28- Chargeability :-Under head Profits and gains of business or profession
Section: 29 -Computation of profits and gains from business or profession
( Permits deductions/ allowances )
Sections 30 to section 37 : deductions expressly allowed in respect
of expenses and allowances
Section: 30- Deduction of Rent, rates, taxes, repairs and insurance for buildings
Section 31 - Deductions of Repairs and insurance of machinery, plant and furniture
Section: 32 Depreciation (excluding Depreciation Rates)
General deductions
Sec. 40 (a) Interest , Royalty, fees for technical services payable outside India or
payable to non- resident in India is disallowed where TDS is not deducted
Special provisions
The value of any benefit or perquisite, whether convertible into money or not,
arising from business or the exercise of a profession
Income chargeable
Any sum received for not carrying out any activity in relation to any business or not
to share any know-how, patent, copyright, trademark, etc.
Any sum received under a Key man insurance policy including bonus
Methods of Accounting
Expenses debited to profit and loss account but are not allowed as per income tax
Act, are to be added to profits
Expenses which are admissible but not debited to profit and loss account should be
deducted from profits
Income chargeable but not credited to profit and loss account should be added to
profits
Income which are credited to profit and loss account but not taxable under the head
profits and gain of business or profession , should be deducted
CONCLUSION
This examines the process of defining a taxpayer from a specific point of view, namely the
issue that has to be dealt with beforehand: classifying the legal structure by means of which
the taxable income is acquired. Only in recent decades the fiscal legislator has become
aware of the technique of fiscal transparency and the possibilities and consequences of
conflicting classifications of a single entity under two or more legal systems. The matter of
classifying an entity has, to this very day, hardly been integrated into Belgian legislation.
This thesis is an attempt, by means of a general framework of concepts, to clarify this
issue. However, the way in which an entity is classified, as well as the extent to which
foreign taxation under possibly divergent classifications is taken into consideration,
remains ultimately a matter of government policy. It is for that reason that we have limited
ourselves in this thesis to formulate some proposals. They may or may not be adopted in
both internal national legislation and in double tax conventions that have already been
concluded or may be concluded in the future. It is the hope of the author that this work may
serve to contribute to a furtherawakening to the outlined problems and the proposal of
suitable techniques that may be helpful in the realization of new policies in an efficient and
effective way.
BIBLOGRAPHY:1) www.incometaxindia.gov.in
2) www.icai.in
3) www.indiataxes.com
4) www.finotax.com
5) www.law.incometaxindia.gov.in
6) www.indiabudget.nic.in
http://www.incademy.com/courses/Basic-taxation/Keep-itlegal/2/1101/10002
http://www.slideshare.net/?ss
TEXTBOOK