DIRECT TAXATION

(A.Y. 2012-13) Click to edit Master subtitle style Dr. N.K.GUPTA

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PPTs prepared by: Rishi Ballabh

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CHAPTER 01

Basic Concepts and Tax Rates

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Basic Concepts and Tax Rates

India is a socialist, democratic and republic state. India for the tax purpose will include the territorial waters of India, i.e., area up to 12 nautical miles from Indian land mass, it also includes exclusive economic zone of India as referred in the constitution of India and the air space above its Click to edit territorialsubtitle including the state of Jammu territory and Master waters, style & Kashmir. Constitution of India is supreme law of land. The Constitution includes three lists in the Seventh Schedule providing authority to the Central Government and the state governments to levy and collect taxes on subjects stated in the lists.
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Powers of Central or State Government to Levy Tax

Article 246(1) 246(1) Empowers Central or State toGovernment edit Master For Levy of various taxes. Levy taxes in List I of the Seventh Schedule of the constitution. Levy taxes in List II of the Seventh Schedule of the Constitution. List III of Seventh Schedule.
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Central Government

246(3)

State Government

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Central and State Government

List I : Union List

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List II : State List

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List III : Concurrent List

The Elements of Income Tax Law

Click Income Tax subtitle style 1. Theto edit Master Act, 1961 2. Annual Amendments through Finance Act 3. Circulars / Notifications from Central Board of Direct Taxes (CBDT) 4. Supreme Court and High Court Decisions
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Determining the Rates of Tax under the Income Tax Act, 1961
1. Income Tax shall be charged at the rates fixed for the year by the Annual Finance Act. 2. Theto edit Master to the Finance Act provides the Click First Schedule subtitle style following rates of taxation.

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Finance Act, 2010

Direct Tax and Indirect Tax

Direct tax is the tax which is charged directly on the tax payer (i.e. in the hands of the assessee). Click to edit Master subtitle style For example, property tax and income tax. Indirect taxes are those which are indirectly collected from assessee (like customer) by an intermediary (like retail store). For example, in case of sales tax, the seller collects tax from the buyer; hence the buyer ultimately pays the tax. The seller files a tax return and eventually passes to the government
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Direct Taxation in India

Direct taxation in India is taken care of by the Central Board of Direct Taxes (CBDT); it is a division of Department of revenue under Ministry of Finance. CBDT is governed by the Revenue Act, 1963. CBDT is given the authority to create and control direct taxes in India. The most important function of CBDT is to manage direct tax law followed by Click to edit Master subtitle style Income Tax department. In India the tax structure is divided amongst the central government and state government. The central government levies taxes on income, custom duties, central excise and service tax. While the state government levies tax like state excise, stamp duty, VAT (Value Added Tax), land revenue and professional tax.
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Person [Sec. 2(31)]

The income tax is charged in respect of the total income of the previous year of every person. Here the person means 1. An Individual 2. A Hindu Undivided Family (HUF) 3. An association of persons or a body of individuals whether Click to edit Master subtitle style incorporated or not 4. A Company 5. A firm i.e., a partnership firm 6. A local authority. 7. Every artificial, judicial person, not falling within any of the above categories.
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Change in Definition of Firm, Partner & Partnership

The Budget 2009-10 has amended the definition of Firm and Partners in the following manner:
1. Firms shall have the meaning assigned to it in the Indian Partnership Act 1932 and shall include a limited liability Partnership as defined in the Limited Liability Partnership Act 2008. 2. Partner shall have the meaning assigned to it in the Click to edit Master subtitle style Indian Partnership Act 1932 and shall include: Any person, being a minor, has been admitted to the benefits of partnership A partner of a limited liability partnership as defined in the Limited Liability Partnership Act 2008. 3. Partnership shall have the meaning assigned to it in the Indian Partnership Act 1932 and shall include a limited liability partnership as defined in the Limited Liability Partnership Act 2008
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Limited Liability Partnership (Features of a LLP)

LLP is a separate legal entity, separate from its partners, can own assets in its name, sue and be sued. Unlike corporate shareholders, the partners have the right to manage the business directly One partner is not responsible or liable for another partners misconduct or negligence. Minimum of 2 partners and no maximum. Should be for profit business. Click to edit Master subtitle style Perpetual succession. The rights and duties of partners in LLP, will be governed by the agreement between partners and the partners have the flexibility to devise the agreement as per their choice. The duties and obligations of Designated Partners shall be as provided in the law. Liability of the partners is limited to the extent of his contribution in the LLP. No exposure of personal assets of the partner, except in cases of fraud. LLP shall maintain annual accounts. However, audit of the accounts is required only if the contribution exceeds Rs. 25 lakhs or annual 3/25/12 1212

A Local Authority Artificial Judicial Person Assessee [Sec. 2(7)] Financial Year (F.Y.) Assessment Year (AY) [Sec. 2(9)] Previous Year (PY) [Sec. 3] Accounting Year vs. Previous Year

Determination of the first previous year in case of a newly setup business or profession or for a new source of income

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Income
1. 2. 3. 4. Income can be in any form i.e., in cash or in kind Income also includes illegal income Disputed title to income does not make any difference Income must come from outside. One cannot earn profit from himself 5. Diversion of income by overriding title is not taxable, while application of income is taxable 6. Income should be real and not fictional 7. Receipt in lump sum or in installment does not make any difference. Difference between capital receipt and revenue receipt must be kept in mind..

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All revenue receipts are always taxable unless specifically exempt. Exempted revenue receipts are given u/s 10 of Income Tax Act, 1961. All capital receipts are always exempt unless specifically taxed (example, compensation for termination of employment, profit/loss on transfer of capital asset)
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Rates of Income Tax

1)

Individual
For resident woman For resident senior citizen (Male/Female) Education Cess and Secondary Higher Education Cess(EC&SHEC)

2)

HUF

3) Partnership Firm and Limited Liability Partnership (LLP) 4) Company

Dividend Distribution Tax Minimum Alternate Tax Marginal Relief

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5) Co-operative Societies 6) Local Authorities 7) Capital Gains 8) Wealth Tax

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