Income Tax: Introduction
The tax statutes in India:
Income Tax Act, 1961
Income Tax Rules, 1962
Amendments made by Finance Acts
Decisions of Supreme Court
Decisions of respective High Court
Decisions of Income Tax Appellate Tribunals (ITAT)
Notifications and circulars issued by Central Board of Direct Taxes
(CBDT)
Finance Act 2020
Finance Ministry Press Releases (viz. 13 May 2020)
Language used by Income-tax Act, 1961
Assessee
2(7) "assessee" means a person by whom 28[any tax] or any
other sum of money is payable under this Act, and includes—
(a) every person in respect of whom any proceeding under this
Act has been taken for the 29[assessment of his income or
assessment of fringe benefits] or of the income of any other
person in respect of which he is assessable, or of the loss
sustained by him or by such other person, or of the amount of
refund due to him or to such other person ;
(b) every person who is deemed to be an assessee under any
provision of this Act ;
(c) every person who is deemed to be an assessee in default
under any provision of this Act ;
28. Substituted for "income-tax or super-tax" by the Finance Act, 1965(10 of 1965) , w.e.f. 1-4-1965.
29. Substituted for "assessment of his income" by the Finance Act, 2005 (18 of 2005), w.e.f. 1-4-2006.
Assessee
Any person assessable under the IT act for assessment of
o his income or
o income of any other person for whom he is assessable
(representative assessee)
Assessee in default
Person
(i) An individual
(ii) A Hindu Undivided Family (HUF)
(iii) A Company
(iv) A Firm or Limited Liability Partnership
(v) An Association of persons (AOP) or Body of
Individuals (BOI)
(vi) A local Authority
(vii) Every Artificial Judicial Person not falling under any of
the above
Assessment year
- 12 months commencing on the 1st April every year
Previous year
- the financial year (1st April - 31st March next year)
immediately preceding the assessment year
Charging of Tax
- Income of previous year chargeable to tax during assessment
year
- Income tax rates fixed by Finance Act
- For computing Total Income, provisions of the Act as
applicable on 1st April of the relevant Assessment Year will
be applied (for procedural matters, provisions of the Act will
be applicable from the date of amendment)
Gross Total Income (GTI) and Total Income
Total Income = GTI less deductions u/s 80C to 80U
Exemptions and deductions
Exempt income not included in the computation of income -
Exemption can not exceed the amount of income
Deduction is generally applied on income chargeable to tax –
deduction could be less than, equal to or more than the
amount of income - deduction may exceed income in which
case the resulting figure will be taken as a loss
Conditions for taxability
Residential status during previous year
place of accrual/ receipt of income
time of accrual/ receipt of income - Previous Year
Methods of accounting
Accrual or mercantile basis
Cash basis
Heads of Income
Income from Salaries - accrual basis or receipt basis,
whichever is earlier - so worst of both worlds
Income from House Property -accrual basis
Profits and Gains of Business or Profession - accrual or
cash basis
Capital Gains - taxable in the year in which capital asset is
transferred (accrual)
Income from Other Sources - accrual or cash basis
Capital and revenue - income or expenditure
All revenue incomes are taxable unless exempted by a specific
provision in the statute – all capital receipts are not taxable unless a
specific provision in the statute expressly taxes it
Similarly revenue expenses are allowed as deductions from gross
income (tax breaks) – capital expenditures are not allowed as
deductions
Application of income vs. Diversion of income by
overriding title
If a third person becomes entitled to receive an amount under an
obligation of an assessee even before assessee could lay claim to
receive it as his income, there would be a diversion of income by
overriding title
However, when after receipt of the income by the assessee, the same
is passed on to a third person, it will be a case of application of
income by the assessee and not of diversion of income by overriding
title
Statement of Computation of Income and Taxes
1. Income from Salaries
2. Income from House Property
3. Profits and Gains of Business or Profession
4. Capital Gains
Long-term capital gains
Short-term capital gains
5. Income from Other Sources
GROSS TOTAL INCOME
Less: Deductions under sections 80C to 80U
(deductions cannot exceed Gross Total Income)
TOTAL INCOME
Total Income --
Subject to Special Tax Rates
Remaining Income Subject to Normal Rates
tax at special rates
tax at normal rates
Income tax on Total Income
Add: Surcharge
(0%/ 10% /15% of Income Tax )
Total Tax and Surcharge
Less: Rebate u/s 87A
Add: Education Cess
(at 4% of Income Tax and Surcharge)
Total Tax, Surcharge and Education Cess
Less: Rebates under sections 89, 90 and 91
Total Tax Liability
Add: Interest/Penalty etc
Less: Prepaid Taxes (advanced Tax, self-assessment
tax, TDS, TCS etc
Tax Payable
Residence in India: Individuals
Resident and Ordinarily Resident (ROR)
Resident and Not ordinarily resident (RNOR)
Non Resident (NR)
Tax incidence Whether chargeable to tax
Resident Not Non
Ordinarily Resident
resident
Income received (or deemed to be Yes Yes Yes
received) in India, whether earned in
India or elsewhere -- the term received
here means the first occasion when the
assessee gets the money under his control
Income which accrues or arises (or is Yes Yes Yes
deemed to accrue or arise) in India,
whether received in India or elsewhere
Income received/ accrued outside India Yes No No
from any head of income, other than
business
Income received/ accrued outside India Yes No No
from a business controlled outside India
or from a profession set up outside India
Income received/ accrued outside India Yes Yes No
from a business controlled in India or
from a profession set up in India
Test Question
1. From the following incomes earned by Mr. Rajesh during the Previous
year 2019-20, determine the total income for the assessment year 2020-21
if he is
Resident and ordinarily resident
Not ordinarily resident
Non-resident
a) Profits from a business in Mumbai, managed from London Rs. 300,000
b) Profits for services rendered in India but received in Singapore Rs. 150,000
c) Interest on UK govt. Bonds quarter of which is received in India Rs. 40,000
d) Income from property situated in Japan, received there Rs.200,000
e) Past Foreign untaxed income brought to India during the prev. year Rs. 70,000
f) Income from agricultural land in Nepal, received there and then
brought to India Rs. 300,000
g) Income from profession in Kenya, which was set up in India but
received in Kenya Rs. 120,000
Nature of Income Amount Rs. Resident Not Non-
and ordinarily resident
ordinarily resident
resident
a) Profits from a business in Rs. 300,000 300000 300000 300000
Mumbai, managed from London
b) Profits for services rendered in Rs. 150,000 150000 150000 150000
India but received in Singapore
c) Interest on UK govt bonds Rs. 40,000 40000 10000 10000
quarter of which is received in India
d) Income from property situated in Rs.200,000 200000 0 0
Japan, received there
e) Past Foreign untaxed income Rs. 70,000 0 0 0
brought to India during the prev yr
f) Income from agricultural land Rs. 300,000 300000 0 0
received in Nepal and then brought
to India
g) Income from profession in Kenya, Rs. 120,000 120000 120000 0
which was set up in India but
received in Kenya
