Project report on

Concept of Charge in Income Tax Act

Project submitted to
MISS. Varendyam J Tiwari
(Faculty: Taxation)

Project submitted by
Apoorva chandra
ROLL NO. 25
Semester V

HIDAYATULLAH NATIONAL LAW UNIVERSITY

RAIPUR, (C.G)
 DECLARATION
I, Apoorva Chandra, hereby assert that this project is my own, hence original.

The information submitted herein is true and original to the best of my

knowledge.

ACKNOWLEDGEMENTS
I would like to extend my heartfelt gratitude to everyone who has played a
substantial role in helping me do this project my teacher Varendyam ma'am, my
friends and my family.

I am greatly indebted to Varendyam Ma'am for her generous support throughout

the semester and her guidance in the making of this project. Her lectures in the
class hours were very interactive and interesting which acted as an inspiration for
the contents of the project and motivated me to actually look upon Tax Laws as
more than a subject and a good topic of research. Her approach towards tax Laws
motivated me to go through the topic on my own and the same is what I have tried
to reflect on my project report.

The HNLU Library was also very helpful for it contained all the basic
information I needed to have before starting my project and clearing my
understanding of the topic .

Last but not the least I would not forget to mention about the sources which were
helpful in the making of the assignment particularly the online research database
Heinonline.com and Jstor.com for having ample of researched articles for ready
reference.

I have put my best efforts in preparation of this assignment titled but suggestions,
if any are more than welcome.

Apoorva Chandra (SEM V, Roll No. 25)

HNLU

Contents
1. Declaration 3
2. Acknowledgements 4
3. Section 1: Introduction 5
i) Contextual Outline 5
ii) Objectives of the study
iii) Methodology of the study 6
7
4. Section 2: Basic Definition of charge 8
5. Section 3: Charge to income tax 11
6. Section 4:taxability in India 13
7. section 5: Determination of Income 14
8. Conclusion 15

References 16

OBJECTIVE OF THE STUDY

Set in the above perspective, the broad objective of the study is to Understand what
is Charge of Income tax and analyze it on the following aspects
The specific objectives or the interrelated objectives of the study are as follows:

To analyze and understand the concept of Charge

To understand on what heads tax is charged on income
To understand what are the basis of taxation in India

RESEARCH METHODOLOGY
The research methodology adopted is descriptive analytical.

The sources of data in the project include - books, websites, discussions on the
topic with the subject teacher, seniors and friends.

INTRODUCTION

What is tax?
A tax is a financial charge or other levy imposed upon a taxpayer by a state or the functional
equivalent of a state to fund various public expenditures.[1] A failure to pay, or evasion of or
resistance to taxation, is usually punishable by law. Taxes consist of direct or indirect taxes and
may be paid in money or as its labour equivalent. Some countries impose almost no taxation at
all, or a very low tax rate for a certain area of taxation.

Authority charging income tax?

The Central Government has been empowered by of Schedule VII of the Constitution of India to
levy tax on all income other than agricultural income .2 The government of on taxable income of
all persons including individuals, Hindu Undivided Families (HUFs), companies, firms,
association of persons, body of individuals, local authority and any other artificial judicial
person. Levy of tax is separate on each of the persons. The levy is governed by the Indian
Income Tax Act, 1961. The Indian Income Tax Department is governed by CBDT and is part of
the Department of Revenue under the Ministry of Finance, Govt. of India. Income tax is a key
source of funds that the government uses to fund its activities and serve the public.

Charge to income-tax
An entity whose income exceeds the "maximum amount", which is not chargeable to the income
tax, is an assessee, and shall be chargeable to the income tax at the rate or rates prescribed under
the finance act for the relevant assessment year, shall be determined on basis of his residential
status.

Income tax is a tax payable, at enacted by the Union Budget (Finance Act) for every Assessment
Year, on the Total Income earned in the Previous Year by every Person.
The chargeability is based on nature of income, i.e., whether it is revenue or capital. The rates of
taxation of income are-:

1. Individual resident aged below 60 years

2. Senior Citizen

3. Super Senior Citizen

4. Any NRI / HUF / AOP / BOI / AJP

5. Co-operative Society

6. Firm

7. Local Authority

8. Domestic Company

9. Other Company

Scope of total income

Indian income is always taxable in India not withstanding residential status of the taxpayer.
Foreign income3 is not taxable in the hands of a non-resident in India. For resident (in case of
firm, association of persons, company and every other person) or resident & ordinarily resident
(in case of an individual or an HUF), foreign income is always taxable. For resident but not
ordinarily resident foreign income is taxable only if it is business income and business is
controlled wholly or partly in India or it is a professional income and profession is set up in
India.

^1 Foreign income is the one which satisfies both the following conditions:-

Income is not received (or not deemed to be received under section 7) in India, and
 Income doesn't accrue (or doesn't deemed to be accrued under section 9) in India.

If such an income satisfies one or none the above conditions then it is an Indian income.

Section 4 of the Income-Tax Act, 1961 , is the basic charging section under which income-tax is
chargeable on the total income of every person. The word income is defined under section
2(24) of the Act. As per section 14, all income, for the purpose of charge of income-tax and
computation of total income, is classified under five heads of income. Then section 15 is the
charging section in respect of Income from salaries, section 22 in respect of Income from
house property, section 28 in respect of Profits and gains of business or profession, section 45
in respect of Capital gains and section 56 in respect of Income from other sources.

a) Income tax shall be charged at the rate or rates prescribed in the finance act for the relevent
previous year,

b) the charge of tax is on various persons specified u/s 2(31);

c) the income sought to be taxed is that of the previous year and not of the of assessment year

d) the levy of tax on the assessee is on his total or taxable income computed in accordance with
and subject to the appropriate provisions of the income tax Act, including provisions for the levy
of additional income-tax.

For the purpose of making an assessment, the generel rule is that the income of the previous year
alone should be taxed in the immediately following assessment. However there are five
exception to this rule :

a) Assessment of non-residents in respect of their income from shipping business (Section 172)

b) Assessment of persons leaving India (Section 174)

c) Assessment of association of persons or body of individuals or artificial judicial person

formed for a particular event or purpose (Section 174A)
d) Assessment of persons trying to alienate their assets with the object of avoiding liability to tax
(Section 175)

e) Assessment of the income from discontinued business (Section 176)

TAXIBILITY IN INDIA

Taxability in India depends on the following factors:

a) Source of income

b) Residential status

Any income, the source of which is located in India, is taxable in India (irrespective of
residential status of the person).

Residential status is determined on the basis of physical presence of an individual in India during
a financial year. If the individual satisfies any of the basic conditions mentioned below, she
would qualify as a resident, otherwise she would qualify as a non-resident for tax purposes.

Basic conditions

Stay in India during the financial year is 182 days or more, or

Stay in India during the financial year is 60 days or more and in the four years immediately
preceding the financial year is 365 days or more.
A resident may either qualify as a resident and ordinarily resident (ROR) or resident but not
ordinarily resident (RNOR). If any of the additional conditions are not met, then the individual
would qualify as RNOR, otherwise the individual would qualify as ROR.

Additional conditions

Resident in India in nine of 10 financial years preceding the relevant financial year, or

Stay in the 7 years preceding the relevant financial year is in aggregate 729 days or more.

An individual qualifying as ROR is taxed on her global income and is required to report her
global assets in her Indian income tax return. However, an individual qualifying as a non-
resident or RNOR is taxed on her India-source income (i.e., income earned in India or received
in India).

Accordingly, the salary deposited in the NRE account in India is liable to tax in India. Benefits
under the Double Taxation Avoidance Agreement may also be explored.

DETERMINITION OF RESIDENTIAL STATUS

To determine the residential status of an individual, the first step is to ascertain whether he is
resident or non-resident. If he turns to be a resident, then the next step is to ascertain whether he
is resident and ordinarily resident or is a resident but not ordinarily resident

Determining whether resident or non-resident

Under the Income-tax Law, an individual will be treated as a resident in India for a year if he
satisfies any of the following conditions (i.e. may satisfy any one or may satisfy both the
conditions):

(1) He is in India for a period of 182 days or more in that year; or

(2) He is in India for a period of 60 days or more in the year and for a period of 365 days or more
in 4 years immediately preceding the relevant year.

If an individual does not satisfy any of the above conditions he will be treated as non-resident in
India.

A resident individual will be treated as resident and ordinarily resident in India during the year if
he satisfies following conditions:

(1) He is resident in India for at least 2 years out of 10 years immediately preceding the relevant
year.

(2) His stay in India is for 730 days or more during 7 years immediately preceding the relevant
year.

A resident individual who does not satisfy any of the aforesaid conditions or satisfies only one of
the aforesaid conditions will be treated as resident but not ordinarily resident.

DETERMINITION OF INCOME

The total income of a person is segregated into five heads:-

Income from salaries

 Income from house property

Profits and gains of business or profession

Capital gains

Income from other sources

Income from salaries

Section 15 to section 21 relate to income charged under the head salary. Salary includes basic
salary or wages, any annuity or pension, gratuity, advance of salary, leave encashment,
commission, perquisites in lieu of or in addition to salary and retirement benefits.

Allowances : An allowance is a fixed monetary amount paid by the employer to the employee for
expenses related to office work. Allowances are generally included in the salary and taxed unless
there are exemptions available

All income received as salary under employer-employee relationship is taxed under this head,
on due or receipt basis, whichever arises earlier. Employers must withhold tax compulsorily
(subject to Section 192), if income exceeds minimum exemption limit, as Tax Deducted at
Source (TDS), and provide their employees with a Form 16 which shows the tax deductions and
net paid income.

Income from house property

Income under this head is taxable if the assessee is the owner of a property consisting of building
or land appurtenant thereto and is not used by him for his business or professional purpose. An
individual or an Hindu Undivided Family (HUF) is eligible to claim any one property as Self-
occupied if it is used for own or family's residential purpose. In that case, the Net Annual Value
(as explained below) will be nil. Such a benefit can only be claimed for one house property.
However, the individual (or HUF) will still be entitled to claim Interest on borrowed capital as
deduction under section 24, subject to some conditions

Income from any residential or commercial property are charged to tax under section 22 to
section 27 of the Income Tax Act . In fact , if one own more than one house , barring one , other
properties are charged to tax despite the fact that the house may not be put on rent.

Income chargeable to tax under the head Income From House Property is computed as Annual
Value and is the higher of the fair rental value, rent received or municipal rent. Standard
deduction of 30% is allowed on the ALV . Further , one can reduce the interest on borrowed
capital.

Income from other sources

This is a residual head, under this head income which does not meet criteria to go to other heads
is taxed. There are also some specific incomes which are to be always taxed under this head.

1. Income by way of Dividends.

2. Income from horse races/lotteries.

3. Employees' contribution towards staff welfare scheme/ provident fund/ superannuation

fund or any fund set up under the provisions of ESIC Act, received from the employees
by the employer.

4. Interest on securities (debentures, Government securities and bonds).

5. Any amount received from keyman insurance policy including the sum allocated by way
of bonus on such policy.

6. Gifts (subject to certain conditions and exemptions).

 7. Interest on compensation/enhanced compensation.

8. Income from renting of other than house property.

9. Family pension received by family members after the death of the pensioner.

10.Income by way of interest on other than securities.

Profits and gains of business or profession

Income earned through your profession or business is charged under the head profits and gains
of business or profession. The income chargeable to tax is the difference between the credits
received on running the business and expenses incurred.

The deductions allowed are depreciation of assets used for business; rent for premises; insurance
and repairs for machinery and furniture; advertisements; traveling and many more.

Capital gains

Section 45 is the charging section for capital gains. Any profit or gain arising from transfer of
capital asset which is defined under section 2(14) held as investments are chargeable to tax under
the head capital gains.

The capital gains are charged to tax under two sub-heads -short term capital gains or long term
capital gains. Further , Income Tax Act also provide the special rate of tax for charging tax on
capital gains on shares and mutual funds.

There are tax exemption from long term capital gains on sale of residential house or other capital
asset or even agriculture land under section 54 or section 54F or section 54EC or section 54B of
the Income Tax Act.
references

1. Institute of Chartered Accountants of India (2011). Taxation. ISBN 978-81-8441-290-1.

2. "Growth of Income Tax revenue in India" (PDF). Retrieved 16 November 2012.

3. "Income Tax rates for Companies". businesssetup.in.

4. Finance Act 2010

5. "e-Filing Statistics", incometaxindiaefiling.gov.in

6. "Annual Information return".

7. "Readers' Corner: Taxation", Business Standard (newspaper), 27 March 2016

8. Section 271 of India IT Act

9. Indian Income tax department

10. Electronic Filing of Income Tax returns

11. Union budget and Economic Survey

12. Income Tax Settlement Commission Website