INCOME TAX INTRODUCTION

Q.1 WHAT IS TAX ? A.1 Tax is compulsory payment to government for revenue purpose for which the Govt. need offer no service or grant or benefit to the payer. Tax may be imposed by the Government upon the person, property, income, privileges, occupations and enjoyments of the people etc. for the purpose of revenue. Q.2 WHAT IS INCOME TAX ? A.2 Income tax means tax on income whether real or notional, in cash or in kind. The word Income is separately defined under section 2(24) of I.T. Act, 1961.

WHAT IS INCOME TAX ACT 1961?

Income tax was first introduced in India on 31-07-1860, by Sir James Wilson i.e British ruler, to meet heavy expenses and losses arising due to the Military expenses of 1857. The first act for taxation of income was passed in 1860. Thereafter number of Acts were passed between 1860 to 1961. Finally on the recommendation of law commission and Tyagi committee, the present Income tax Act was passed by parliament on 13-09-1961 which is called Income tax Act 1961.

WHAT IS FINANCE ACT ?

The process of computing income is given in the Income tax Act, but at what rate income tax is to be charged is not given in the Income tax Act,1961. The rate of Income Tax is fixed by the Finance Act every year generally on the last day of February. We are aware that the budget of the Central Government is presented by the Finance Minister to the Parliament every year generally on the last day of February. To make this budget proposals effective, the Finance Bill is moved, which is called as budget proposal. When the Finance Bill passed by both the houses of parliament and signed by the President of India, it becomes a Finance Act. The Finance Act fixes the rates of tax, rates of deduction of tax at source and advance payment of tax. The finance Act is also being used to effect amendment to the direct tax laws.

WHAT TYPE OF TAX IT IS? DIRECT OR INDIRECT ?

Taxes are of two types : (a) Direct taxes (b) Indirect taxes If any tax is borne & paid by a person on whom it is charged it is called Direct tax. Thus, in case of Direct tax burden of tax cannot be shifted e.g. Income tax, Wealth tax, Gift tax are direct taxes. If any tax is borne by a person other than the person on whom it is charged, is called Indirect tax. Thus, in case of Indirect tax burden of tax can be shifted. e.g. Sales tax, Custom duty, Excise duty, Service tax, Entry tax, Expenditure tax etc. are indirect taxes.

WHY INCOME TAX IS TO BE CHARGED ? Which are the objects of charging Income Tax ?
The main object of charging income tax and many other taxes is to raise revenue to meet various expenditures incurred by the Government to develop, to administrate, to defence the country and for the welfare of public. The another object of charging income tax is to reduce the gap between the rich and poor and to reduce inequalities in income and wealth by taxing the rich at higher rates. Regional economic imbalances are also being reduced by providing incentives and concessions in income tax for starting new industries in backward areas. Other objects are-Encouragement of savings, Mobilisation of employment, Creation of employment, Regulation of entrepreneurs behaviour, Encouragement of foreign investments, Creation of a sense of nationality etc.

Income Tax Law

To understand the Income-tax law it requires study of the following :-(A)The Income-tax Law (amended up-todate) (B) The Income-tax Rules, 1962(amended upto-date). (C) Circulars, clarifications issued from time to time by the CBDT. (D) Judicial decisions. The provisions of the Income-tax are contained in the Income-tax Act 1961 which extends to the whole of India and became effective from 1-4-1962. Scope of Income-tax Act:- The Income-tax act contains provisions for determination of taxable income, determination of tax liability, procedure for assessment, appeals, penalties, procecution, powers of I.T.authorities

Income Tax Law

Annual amendments:- Every year a Budget is presented before the Parliament by the Finance Minister One of the most important components of the Budget is the Finance Bill, which declares the financial proposals of the Central Government for the next financial year The first schedule gives the rates of Income-tax in 4 parts: Part-I :- It gives the rates of income-tax for various assessees for the current assessment year. Part-II : It gives the rates for deduction of tax at source from the income earned in the current financial year. Part-III :-It gives the rates for calculating income-tax for deducting tax from income chargeable under thehead salaries, rates for Advancetax

Income Tax Law

Income-tax Rules 1962:- Every Act normally gives power to an authority, responsible for implementation of the Act, to make rules for carrying out purposes of the Act. Section 295 of the Income-tax Act has given power to the CBDT to make such rules, subject to the control of the Central Government. Circulars and Clarifications by CBDT:- The CBDT in exercise of the powers conferred on it under section 119 has been issuing certain circulars and clarifications from time to time, which have to be followed and applied by the Income-tax Authorities. However, these circulars are not binding on the assessee or Commissioner(Appeal) or the ITAT or on the Courts.

Income Tax Law

Judicial Decisions :-Any decision given by the Supreme Court becomes a law which will be binding on all the Courts, Appellate Tribunals, the Income-tax Authorities as well as on all the assessees. Decisions given by a High court, Income-tax tribunal, etc. are binding on all the assessees as well as the Income-tax authorities which fall under their jurisdiction, unless it is over-ruled by a higher authority. The decision of one High court is neither binding precedent for another High Court nor for Tribunals outside its territorial jurisdiction. The decision of the higher authority is binding on the lower authority in the judicial hierachy.

Income Tax Law

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 in India at the rate or rates prescribed in the Finance Act for the relevant previous year. However, his total income shall be determined on the basis of his residential status in India. An analysis of the above statement would reveal the following important concepts, which are necessary for understanding the framework of the I.T.Act,1961. (1) India(2)Person(3)Assessee(4)assessment Year(5) Previous Year(6)Rate or rates of tax(7)Residential Status etc.

ASSESSMENT YEAR : SECTION 2(9)

Assessment year means the period of 12 months commencing on
the 1st day of April every year. In other words period starting from 1st April and ending on 31st March of the next year is called Assessment year for Income tax purpose. It means :- (a) Assessment year is always of 12 months (b) A.Y. always starts from 1st day of April, and (c) A.Y. always ends on 31st day of March of the next year.

Income-tax law-assessee. [Section 2(7)]

Assesseee means a person by whom any tax or any other sum of money (say interest or penalty) is payable under this Act and includes the following. (i) Every person in respect of whom any proceedings under the Income-tax Act has been taken e.g. assessment of his income, determination of loss, determination of loss.(ii) A person who is deemed to be an assessee under any provisions of this Act. E.g. legal representative of a deceased person or the agent of a person who is a non-resident or the trustee of a trust. (iii) Every person who is deemed to be an assessee in default under any provisions of this Act. Eg. TDS default

Person sec 2(31)

The definition of assessee leads us to the defination of person as all assessee should be a person. According to Sec 2(31) of the Income Tax Act 1961, the term person includes : 1 Individual 2 Hindu undivided Family 3 Firm 4 Company 5 Association of persons or Body of Individuals.(AOP/BOI) 6 Local Authority 7 Every Artificial Juridical person

PERSON
For Income tax purpose there are 7 categories of persion which are discussed below: Individual Individual means a natural human being. It includes males and females, minor and major, person of sound mind and of unsound mind. For a minor or lunatic assessee will be his guardian or manager as per Sec 161(1) . In the case of deceased person, assessment would be made on the legal represantative.

PERSON
Hindu undivided Family (HUF) According to Hindu Law, HUF means a family consist of all persons lineally descended from a common ancestor and includes their wives and unmarried daughters and also a stranger who has been adopted by the family.

PERSON
For example: Father Mr.X & Mother Mrs X Married Son Mr. A Married Son B Unmarried Son C Unmarried Daughter Miss D

PERSON
COMPANY :- SEC. 2(17) According to section 2(17) of the Income-Tax Act, 1961, company means: (a) Any Indian Company registered in India OR A corporation established by or under Central, state or provincial Act. e.g. LIC, Food Corporation of India, Gujarat State Financial Corporation etc.

PERSON
FIRM Sec2(23)
According to Sec 4 of the Indian Partnership Act, 1932, Partnership is the relationship between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.

PERSON
Association of persons :- It is a group of persons and as such it includes individuals as well as other artificial persons like company, HUF, Firm, Co-operative Societies etc. Persons have joined with their free will and wish. Objects of association is to earn income, profits or gains for their common interest.

PERSON
BODY OF INDIVIDUALS (BOI)
It is a group of individuals, so it includes only human beings. BOI merely receives income jointly.

PERSON Sec. 2(31)

LOCAL AUTHORITY : Local authority mean a municipal committee, district board e.g. VADODARA MUNICIPAL CORPORATION, Panchayat, Gram panchayat, Bombay Port Board etc.

person
ARTIFICIAL JURIDICAL PERSON : Persons not falling within any of the preceding classifications is called Artificial Juridical Person e.g. Univirsity.