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Direct Taxes Taxes borne by the person paying the tax. E.g. Income Tax, Wealth Tax. Indirect Taxes Taxes passed on to others by the person paying the tax. E.g. Sales Tax, Excise Duty, Customs Duty, Service Tax. Duties Indirect Taxes paid to the Government first and recovered from others later. E.g. Excise Duty, Customs Duty.
Assessee
As per Section 2(7), assessee means a person by whom any tax or any other sum of money is payable under the Income Tax Act, and includes
every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or of the income of any other person in respect of which he is assessable. every person who is deemed to be an assessee under any provision of this Act. E.g. Representative Assessee, Agent of Non-Resident. every person who is deemed to be an assessee in default under any provision of this Act. E.g. An employer who fails to deduct tax at source from salary paid to employee.
Person
As per Section 2(31), person includes
an individual. a Hindu Undivided Family. a company. a firm. an association of persons or a body of individuals, whether incorporated or not. E.g. Navjeevan CHS Ltd, All India CFP Students Association. a local authority. E.g. BMC, Pune Cantonment Board. every artificial juridical person, not falling within any of the preceding sub-clauses. E.g. University of Mumbai.
AOP can be formed by two or more persons. BOI can be formed by two or more individuals.
Income
As per Section 2(24), income includes
Profits and Gains. Dividend. Voluntary contributions received by Charitable or Religious Trust or Institution. Value of any perquisite, Profit in lieu of salary, Special Allowance or any other benefit received by an employee from his employer. Export Incentive. E.g. Duty Drawback. Interest, Salary, Bonus, Commission or Remuneration received by a partner of a firm from the firm. Capital Gains. Winnings from Lotteries, Crossword Puzzles, Races including Horse Races, Card Games, Gambling, Betting, etc. Sum received by the assessee from his employees towards Provident Fund, Superannuation Fund, etc. Any sum received under Keyman Insurance Policy including Bonus on such policy, Non-Compete Fees, Compensation for not sharing any Know-how, Patent, Trademark, Licence, Franchise, etc. Income from Other Sources.
Income from Illegal activities is taxable. Income need not be in cash, it may even be in kind.
Heads of Income
As per Section 14, income of an assessee is classified under the following five heads of income : Income from Salaries. Income from House Property. Profits and Gains of Business or Profession. Capital Gains. Income from Other Sources.
Total of incomes under all the five heads of income is known as Gross Total Income (GTI). Expenditure incurred to earn an income is deducted depending upon the head of income. Expenditure incurred to earn an exempt income is not allowed to be deducted.
Income Tax Rates For Individuals below 60 years, NR, HUF, BOI, AOP
Where the total income is below Rs. 2,00,000. Where the total income is between Rs. 2,00,001 and Rs. 5,00,000. Where the total income is between Rs. 5,00,001 and Rs. 10,00,000. Where the total income exceeds Rs. 10,00,000. Nil 10 per cent of the amount by which the total income exceeds Rs. 2,00,000. Rs. 30,000 plus 20 per cent of the amount by which the total income exceeds Rs. 5,00,000. Rs.1,30,000 plus 30 per cent of the amount by which the total income exceeds Rs. 10,00,000.
Surcharge
For domestic company having total income exceeding Rs. 1 crore Surcharge @ 5% on Income Tax. For foreign company having total income exceeding Rs. 1 crore Surcharge @ 2% on Income Tax.
Education Cess
For all assessees @ 3% on Income Tax plus surcharge. Education Cess @ 2%. Secondary and Higher Education Cess @ 1% on Income Tax.
Tax Planning
Tax Planning means a systematic arrangement of the financial affairs of a person to take advantage of the deductions, exemptions, rebates and reliefs allowed under the Income Tax Act, 1961. E.g. - Investing in PPF or ELSS (Tax Savings Mutual Funds) in order to get deduction under Section 80C is one of the ways of Tax Planning. Tax Planning is a legal and ethical way of reducing overall tax liability.
Tax Avoidance
Tax Avoidance means arrangement of affairs to avoid payment of tax, by using sham or hard to believe methods. E.g. A person claiming that he has received large sums of money from non-relatives on the occasion of his marriage. Tax Avoidance attempts to take undue advantage of legal loopholes and defeats the basic intention of the legislature behind the Statute. Tax Avoidance is legal but unethical.
Tax Evasion
Tax Evasion refers to illegal and unethical ways and means adopted by tax payers to evade tax E.g. Falsifying accounts, Concealing income, Inflating expenses. Tax Evasion is illegal as well as unethical.