INCOME TAX ACT - 1961

INTRODUCTION

CHAPTER 1: INTRODUCTION
Meaning of Income, Agricutural Income, Previous year, assessment year, Gross total income Tax Free Income Sec 10 Problems on residential status of Individual Problems on Tax liability

Chapter 2: INCOME FROM SALARY

Salary Definition Allowances Perquisites and Retirement Benefits Deductions Computation of Salary Income Problems

Chapter 3: Income from house property

Annual value Let out property Self occupied property Deductions

Module 4: Indirect Taxes

Central Excise: (a) Chargeability (b) Valuation of goods in Central Excise (c) Registration in Central Excise Law (d) Procedure for clearance of excisable goods Central Sales Tax: (a) Definitions (b) Chargeability (c) Interstate sale, sale in the course of Import/Export (d) Registration under CST Act. Service Tax (a) Definitions (b) Chargeability (c) Levy and Collection

Reference Books
1. Direct Tax Law & Practice V.K. Singhania 2. Direct Tax Laws T.N. Manoharan

Direct Vs Indirect Taxes

Levy and Incidence on the same person Eg: Income Tax, Wealth Tax. Levy on one person but burden of incidence entirely on different person Eg: Sales tax, Excise Duty, Service Tax, VAT.

Introduction to ITA - 1961

Levy of income tax governed by ITA-1961 Came into force on 1st April 1962 Contains 298 sections and XII schedules Additions and deletions brought about by Finance Act every year Administration of Direct taxes looked by CBDT. Sec 295 empowers the CBDT to make rules

Sources for the Study

The Income Tax Act 1961 The Finance Act Income Tax Rules Circulars and Notifications Legal decisions of courts.

PREAMBLE ITA 1961

Revenue Mobilisation Balanced Economic Development Savings or Resources Channelisation

FINANCE ACT 2010

PART A : Of the budget speech contains the Proposed policies. PART B : Of the budget speech contains the detailed tax proposals.

 The first schedule has 3 parts Part I : Consists of rates of tax applicable to income of various types of assesses for the assessment year 2013-14. Part II : Rates of deduction of tax at source in certain Cases PART III : Rates for calculating income tax for the purpose of deduction of tax from salary and also for computing advance tax. ( These are applicable for A.Y 13-14).
NOTE: When FA 2013 is passed by the parliament Part III of 1st Schedule becomes Part I of FA 2012.

DEFINITIONS : Sec 2(7) Assesse: Assesse means any person by whom any tax or any other sum of money is payable under this act and also includes 1. Deemed assesse 2. Assesse in default 3. Person on whom any proceedings under the act are being conducted for the assessment of his income.

Sec 2(8) Assessment :

Assessment means computation of amount of tax and imposition of tax liability. Self Assessment Regular Assessment Best Judgment Assessment Protective Assessment Re-Assessment.

Sec 144 Best Judgment Assessment

It is mandatory AO bound to make assessment if any one of the following default occurs. 1. Failure to make Return 2. Failure to comply with terms of notice issue ( File return, procedure accounts, Audit, Audit Report, Produce evidence supporting the return, Ensure his attendance).

Sec 2(31) Person

Person means and includes An Individual HUF Company Partnership Firm Association of persons (AOP) Body of individuals (BOI) Local Authority Artificial Juridical person (AJP)

Company
Any Indian company. Any body corporate under the laws of a country outside India Any Institution, Association or body which is assessable or was assessed as a company before 1st April 1970. Any Institution, Association or body which is declared by a general or Special order of the CBDT to be a company for such AY.

Classes of Companies
Indian Company Domestic Company Foreign company

 Indian company: Formed and Registered under the Act Domestic company: Indian companies and other companies which have made arrangement for declaration and payment of dividend
The share register of the company for all the share holders should be regularly maintained at its principal place of business Dividends declared should be paid only within India. General meeting for passing of accounts In India. Foreign company: It is a company which is not a domestic company

Sec 2 (9) Assessment Year

AY means the period of 12 months starting from April 1 of every year and ending on March 31 of the next year.

Sec 3 Previous Year

Income earned in a year is taxable in the next year. The year in which income is earned is known as previous year.
NOTE : 1. PY not necessarily be 12 months but AY has to be 12 months. 2. Uniform PY ( 1st April 31st March ) 3. Books of accounts not necessarily be maintained from the same dates.

Exceptions to the rule that income of P.Y is taxable in the A.Y

Sec 172: Shipping business of Non Resident. Sec 174 : Persons leaving India permanently or for a long period of time. Sec 174(A) : Bodies formed for short duration. Sec 175 : Persons likely to transfer property to avoid tax. Sec 176 : Discontinued Business

RATES OF TAX:
In case of Individual, AOP, BOI, and AJP.

INCOME

RATES OF TAX

Upto Rs. 180000 (Basic exemption) Nil Above Rs. 180000 Upto 500000 10% Above Rs 500000 to 1000000 20% Above 1000000 30% Basic exemption limit of Rs. 180000 will get enhanced to Rs 190000 in case of resident women and to Rs. 240000 in case of resident senior citizens who are 65 years or more at any time during the P.Y . Very senior citizen above 85 yrs. Limit - 500000
SURCHARGE: ABOLISHED SURCHARGE

10 % of Income tax provided the total income exceeds Rs. 10 Lakhs And Education cess @ 2% + higher education cess of 1 % on income tax. Eg: Mr. A Taxable income Rs. 400000 Mrs. A Taxable income Rs. 700000 Mr. X Taxable Income Rs. 800000 ( Senior citizen)

Co-operative society
On the first Rs. 10000 On the next Rs. 10000 On the balance 10% 20% 30%

Co operative societies are not liable to surcharge but education cess at 2% on tax.

Rates of tax to companies:

In case of domestic companies Other companies 30%

Income from royalties received from govt. 50% On the remaining balance 40% SURCHARGE 10 % for domestic companies 2.5% for other companies Education cess at 2% on total tax.

Surcharge
Surcharge means the extra or additional tax payable by certain assesses calculated at the specified rates on the net tax payable by them. Education cess: it is the additional surcharge on IT and Surcharge. Object of levying the education cess is to provide and finance universalised quality basic education.

Sec 2 (24) Income: Income includes the following Profits and Gains Dividend from shares Voluntary contribution received by trust. Perquisite or Profit in lieu of salary Special allowance or benefits to assesse. Allowance granted to assesse to meet personal expenses Value of any benefit or perquisite received from a company. Int., salary, commission, etc.. Received by a partner from his firm Value of benefits received by a representative of NR, minor or a lunatic. Profit on sale of license granted under the import control Act 1955.

 Any sum chargeable to income tax as P&G of business or recovery of losses in respect of which the assesse has been granted deduction in the past Capital gains Any duty of Customs or Excise repaid or repayable. Winnings from lotteries, crossword puzzles, races, card games or any sort of gambling or betting of any nature. Any sum received by an employer as contribution from employee towards any fund. Profits and gains of business or profession Cash assistance received or receivable by any person against exports under any scheme of central government.

Concepts of Income:
Income is a wide term that covers anything and everything provided it satisfies the attributes of an income. Income must have regularity and definite source. Income is taxable at the earliest of receipt or accrual Income may be in cash or in kind. No distinction is made between legal and illegal income except that for illegal expenses are not deductible.[CIT vs. Piara Singh (1980) 3] Tax free income is always grossed up. Income includes loss. A title dispute will not cause postponement of assessment.

 Double taxation is always avoided. The assesse cannot claim that the source of income does not exist in the A.Y.

Birthday gifts or marriage gifts does not constitute income for Income Tax Act. Dharmada received meant for charitable purpose is not income Stridhan is not income even if such payments are made by husband to his wife for household or other personal expenses. Sports awards received by non-professional sports person are not taxable.

Sec 14: Gross total Income:

Income of

a person is aggregated under 5 heads viz: 1. Income from Salary 2. Income from House property 3. Income from profits and gains of Business & Profession 4. Income from capital gains 5. Income from other sources The aggregate of such income is called gross total income.

Sec 2 (45) : Total Taxable Income: Gross total income as reduced by the deduction available under sec 80 ccc to 80 u is called total or taxable income.

Expenditure
Any expenditure on acquisition of a capital asset or for a benefit of permanent nature is a capital expenditure all other expenditure is revenue expenditure

Receipts
CAPITAL In lieu of source of Income Fund Several P.Y Non recurring Improvement They are exempt from tax unless they are expressly taxable [ E.g. U/S 45] REVENUE In lieu of income itself Flow One P.Y. Recurring Maintenance They are taxable unless they are expressly exempt from tax [ U/S 10]

Capital Receipts
Fixed Capital Receipts Receipt as compensation for surrender of legal rights Receipt in substitution of a source of income Sale proceeds of assets not for resale. Grants received from government for development activities.

Revenue Receipts
Working Capital Receipt Receipt as compensation for loss Sale proceeds of assets held for resale Grant or subsidy received from govt. for meeting day to day expenses.

Capital Expenditure
Cost of acquisition of fixed assets Expenses incurred to free a capital liability Expenditure for the acquisition of a source of income Expenditure for increasing the earning capacity Expenditure incurred for raising capital

Revenue Expenditure
Purchase price of assets & goods for resale Expenditure to free a revenue liability (Eg Creditors, B/P, O/S expenses etc..) Expenditure for earning incomes such as rent, salaries Expenditure for maintaining a fixed asset Expenses for raising loans

Capital Losses
Loss on sale of capital asset Loss of money due to misappropriation after office hours Loss of security deposit Loss of gold, silver, smuggling business is a capital loss as it is not incidental to business

Revenue losses
Loss on sale of current asset Loss incidental to business such as theft of money and loss during office hours. Loss of security deposits due to its forfeiture of non fulfillment of contract or agreement.

Tax Free Incomes Sec 10

Gratuity Sec 10(10) Leave salary Sec 10(10AA) Pension Sec 10(10A) Retrenchment compensation Sec 10(10B) Compensation on voluntary retirement Sec 10(10C) House rent allowance 10(13A) Special allowance 10(14) Provident Fund Sec 10(11/12)