Income Tax

Satish Katkade

Income Tax
Comes from 1st April 1961 For understanding
The income tax Act 1961 The income tax Rules 1962 Circulars, clarification issued from time to time Judicial decisions

The Income Tax Act 1961

Determination of taxable income Determination of tax liability Procedure for assessment Appeals Penalties Prosecutions Annual Amendments with the budget

Income Tax Rules 1962

Gives power to an authority Responsible for implementation of Act Central Board of Direct Taxes to make such rules Rules applicable by notification in the Gazette of India

Circulars and Clarifications by CBIT

Circulars or clarifications from time to time applied by the Income Tax Authorities Some of these binding on the Authorities and some on the Assesses

Judicial Decisions
Decision given by the Supreme Court becomes a low which will be binding on all the Courts

Scheme of Taxation
Every person, whose total income of the previous year exceeds the maximum amount which is not chargeable to income tax, is an assessee and chargeable to income-tax at the rate or rates prescribed in the Finance Act for the relevant assessment year, However, his total income shall be determined on the basis of his residential status in India.

The concepts
Person Assessee Assessment Year Previous Year Rate f Rates of tax Charge of Income Tax Maximum amount which is no chargeable to income tax Total income Residential Status

Person [Section 2(31)]

An individual
Includes a male, female, minor child and lunatic or idiot

A Hindu undivided family

Family which consist of all persons lineally descended from a common ancenstor including their wives and unmarried daughters

Association of persons
two or more persons who join for a common purpose with a view to earn an income

Body of individuals
Individuals who carry on some activity with the objective of earning some income. Members of a companies or firms.

Conti..
A local authority
Panchayat Municipal Committee and District Board

Artificial juridical persons

Not natural person but they are separate entities in the eyes of law Not god, idols and deities are artificial person

Assessee [Section 2(7)]

A person who is deemed to be an assessee under any provision of this Act. That is a person who is treated as an assessee. Every person who is deemed to be an assessee in default under any provision of this Act.

Assessment Year [Section 2(9)]

The period of 12 months commencing on the first day of April every year. 1st April to 31st March

Previous Year [Section2(34)]

The financial year immediately preceding the assessment year Income tax payable on the income earned during the previous year and it is assessed in the immediately succeeding financial year which is called an assessment year.

Income [Sections 2(24)]

Profit and Gains Dividend Voluntary contributions The value of any perquisite And special allowance Any personal allowance granted which increase the cost of living Capital gains Profit and gains of any business of insurance Winnings from lotteries, crossword puzzles, race

Conti..
Sum received by the assessee from his employees as contributions to any provident fund or supperannuation fund or any fund setup Gift come from special occasion From any relative
On the occasion of the marriage of the individual Under will or by way of inheritance In contemplation of death of the payer

Types of income
Regularity of income Form of income
The income received by the assessee need not be in the shape of the cash only

Illegal income Application of income Vs Diversion of income Disputed income

Dispute regarding the title of the income

Contingent income
It is not income unless and until contingency happen

Personal Gifts

Conti
Basis of income Composite income Pin money
Money received by a women for her dress or private expenditure as also small savings effected by housewife out of money given to her by her husband for funning the expenses of the kitchen would not be a income in the eye of he law. Any property acquired with the aid of such money or saving would form a capital asset belonging to the leady

Lumpsum receipt
No effect whether salary receive in installment or in Lumpsum

Income must come from outside

Total of Income
There are following five head of income
Income from salary Income from house property Profits and gains from business or profession Capital gains Income from other sources
(Interest on securities, dividends, winning from lotteries, crossword puzzles, races, card games etc.)

Status of Residency

Conti..
A person may be a resident of more than one country for any previous year. Citizenship of a country and residential status of that country are separate concepts Residential status of a person is to be determined for every previous year because it may change form year to year

Status of Residency
The residential status of an assessee decides the extent of his taxable income. It determine on physical presence and/ or prescribed criterion an against nationality or domicile of the individual A person may be a resident in one previous year and non-resident in next year

Different taxable entities

All taxable entities are divide in the following categories for the purpose of determining residential status
An individual HUF A firm Joint stock company Every other person

Different residential status

Resident in India Non resident in India Resident or ordinarily resident Resident but not ordinarily resident

Individual
Resident and ordinarily resident in India
1. First find out whether such individual is resident in India 2. Then find out whether he is ordinarily resident in India

Resident but not ordinarily resident in India Non- resident in India

Basic Condition
Resident in India in any previous, if he satisfies at least one following basic condition He is in India in previous year for a 182 day or more He is in India for 60 days or more during the previous year
365 days or more during the 4 preceding year

Exceptions for rules A citizen of India and who leaves India in any previous year for the purpose of employment outside India.(182 day than) Citizen of India or is a person of Indian origin. Comes on a visit to India in any previous year, the period of 60 days

Resident & Ordinarily resident

Following two additional conditions 1. India in at least 2 out of 10 previous year 2. In India for a period of 730 days or more during the 7 years preceding the relevant previous year

Resident but not Ordinarily Resident

Who satisfies at least one basic condition but not satisfy the two additional condition it is treated as a resident but not ordinarily resident in India
If he satisfies at least one of the basic condition but on of the additional condition If he satisfies at least one of the basic condition and one of the two additional conditions

Non-resident An individual is non-resident in India if he satisfies non of the basic condition. In case of non-resident, additional condition are not relevant

Hindu Undivided Family

Resident in India
When management and Control form India

Non-Resident in India
When management and Control from out of India

Ordinarily resident in India

Karta or manger of the family satisfies the following two condition
In India in a least 2 out of 10 previous year Period of 730 days or more during 7 year

Association of Person
Resident in India
Control and management of heir affairs are wholly or partly situated within India

Non-resident in India
Control and management of their affairs are situated wholly outside India

Company
Indian company is always resident in India Foreign company is resident in India when management and control situated in India

Particulars of income

Where taxable
Resident Notordinarily resident

NonResident

Income received or deemed to be received in India whether earned in India or elsewhere.

Yes

Yes

Yes

Income, which accrues or arises in India during the previous year, whether received in India or elsewhere. Income, which accrues or arises outside India received outside India from a business controlled from India.

Yes

Yes

Yes

Yes

Yes

No

Income, which accrues or arises outside India in the previous year from any other source.

Yes

No

No

Income, which accrues or arises outside India during the year preceding the previous year and remitted to India during the previous year.

No

No

No