RAJESH NANGALIA CLASSES 9903133927

SEMESTER: III
COURSE NAME: DIRECT AND INDIRECT TAXATION - 1
COURSE TYPE: CORE COURSE CODE: BCHCR2132
CREDIT: 6 MARKS:100

LEARNING OBJECTIVE:
To provide basic knowledge and equip students with the application of principles and provisions of the
Income-tax Act, 1961, Customs Act, 1962, and the related Rules.

DETAILED SYLLABUS:

Unit Unit Name Topics

No.
Direct Tax – Income Tax (70 Marks)
1. Introduction (a) Basic concept and Definitions
Assessee, Persons, Assessment Year, Previous Year, Income, Gross Total Income,
Total / Taxable Income, Income of the previous year is taxed in the same year,
Heads of Income, Sources of Income, Difference between Heads of Income and
Sources of Income, Earned Income and Unearned Income, Tax Evasion, Tax
Avoidance, and Tax Planning, Assessing Officer, Permanent Account Number
(PAN), Tax Deduction Account Number (TAN).
(b) Residential Status and Incidence of Tax
Relevance of Residential Status, Residential Status, and Citizenship, Residential
Status of Individual (Sec.6), Residential Status of Hindu Undivided Family,
Residential Status of Firm, Residential Status and Incidence of Tax (Sec.5).
(c) Incomes Exempt from Tax (Sec. 10)
2. Computation (a) Income under the head “Salaries”
of Income (b) Income under the head “Income from House Property”
under (c) Income under the head “Profits and Gains of Business or Profession”
different [Sec. 28, 30, 31,32, 35, 35D, 36(1), 37(2B), 37(1), 40(a)(i),40(a)(ia), 40(a)(iii), 40A (2),
Heads of 40A (3), 40A (7), 40A (9), 43B, 41(1), 41(2), 41(3), 41(4)].
Income (d) Income under the head “Capital Gains”
[Sec. 2(14), 2(47), 45(2), 45(5), 48, 49(1), 50, 51, 50C, 54,54B, 54D, 54EC, 54F].
(e) Income under the head “Income from Other Sources”
[Sec. 56, 56(1), 56(2)(i), 56(2) (ib), 56(2) (id), 57].
Indirect Tax - Customs Duty (30 Marks)
3. Basic Nature & Types of Customs Duty; Definition as per Customs Act- Territorial
concept and Waters and Customs Waters, Indian Customs Waters, Indian Exclusive Economic
Definitions Zone; High Seas, Customs Station, Customs Bonded Warehouse, Customs Area,
India, Import, Export.
4. Valuation Find out the Value for the purpose of Customs Duty- Inclusions or Exclusions
for Customs from Customs Value.
Duty

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RAJESH NANGALIA CLASSES 9903133927

Overview

Article 246-Union List-Entry 82-Tax on Income other than agricultural Income.

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A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or
legal entity) by a governmental organization in order to fund government spending, public expenditures, or
as a way to regulate externalities.

Where the incidence and impact

of taxation fall on the same
entity.

where the incidence and impact of

taxation does not fall on the same
entity.

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RAJESH NANGALIA CLASSES 9903133927

THE BASIC CONCEPTS

(Person means individual, HUF, Company, Firm, AOP, local
PERSON Authority, other artificial judicial person)

EARNS INCOME IN 2022-23 (2022-23 in which person earns income is called Previous year)

DETERMINES HIS INCOME (2023-24 is called the Assessment year relevant to previous year
IN 2023-24 2022-23 as the income earned by the assessee in 2022-23 is
assessed by the Income Tax Department this year)

PAYS TAX, FILES RETURN

ITO ASSESSES INCOME TO

SEE IF TAX HAS BEEN
PAID CORRECTLY

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 Step to be followed :-
Computation of Total Income

Determine Resident status

Classify under heads

Salaries Income from Profit & Gain from Capital Income from
house property Business/profession (PGBP) Gains (CG) other sources (IFOS)

Apply Clubbing

Set off / Carry forward for Forward

Gross total Income (GTI)

(-) Deduction u/c VI-A

Total Income

Basic Tax @ Applicable Rates

+ Surcharge / Rebate

+ Health & Education Cess (4%)

(-) Advance Tax & TDS

Tax Payable / Refundable

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A. Some Basic Definitions:

(a) Person [Section 2(31)]: Person includes
1. An individual,
2. A Hindu Undivided Family,
3. A Company,
4. A Firm,
5. An Association of Persons (AOP) or a Body of Individual, whether incorporated or not.
6. A local authority,
7. Every artificial juridical person not falling within any of the preceding sub clauses.
An AOP, BIO, artificial juridical person shall be deemed to be person whether such a person was formed,
established or incorporated with the object of deriving of income, profits or gains or not.
(b) Assessee [Section 2(7)]:
Assessee means a person by whom income tax or any other sum of money is payable under the Act. It includes
every person in respect of whom any proceeding under the Act has been taken for the assessment of his income or
loss or the amount of refund due to him. It also includes a person who is assessable in respect of income or losses of
another person or who is deemed to be an assessee, or any assessee in default under any provisions of the Act.
Question: A single letter of enquiry was issued by the Income Tax Department Mr. Shoumik of Pune. In the letter
there was no specific mention of any provision of the Income Tax Act. Can Mr. Shoumik be treated as an assessee
under the Income Tax Act?
Answer: If a single of enquiry issued by the department does not mention any specific provision of the Act, it does
not constitute proceeding under the Act. Hence Mr. Shoumik cannot be treated as the assessee in the given case.
(c) Previous Year [Section 2(34) read with Section 3]
Previous Year means the financial year immediately preceding the Assessment Year. All assesses are required to
follow financial year (i.e. from 1 st April to 31st March next) as previous year. Inc case of a newly setup business or
profession or source of income newly coming into existence first previous year will be the period starting from the
date of setting up business or profession etc. upto the following March. For instance, if a person starts new business
on 3/3/2023, the first Previous Year will be from 3/3/2023 to 31/3/2023.
(d) Assessment Year [Section 2(9)]
Assessment Year means the period of 12 months commencing on the first day of April every year. It is therefore the
period from 1st April to 31st March for example; the assessment year 2023-24 will commence on 1/4/2023 to
31/3/2024. The tax is levied, in each assessment year, with respect to or on the total income earned by the assessee
in the previous year.
(e) Income: [Section 2(24)]
U/s 2(24) income has been defined which is inclusive but not exhaustive. It states that income not only things as
mentioned U/s 2(24) but also other things which the term signifies according to its general and natural meaning.
Some of the items referred under the section are:
(2) Dividend (2) Any Capital Gains (3) Value of perquisites or Profits in lieu of salary taxable under clauses (2) and
(3) of Section 17(4) Profits and gains

B. Basic Principles followed while charging Income Tax [Section 4]

1. Income tax is an annual tax on income
2. Income of previous year is charged in the next following assessment year at the tax rates applicable for the relevant
Assessment year.
3. Tax rates are fixed by Annual Finance Act.
4. Tax is charged on every person as defined under IT Act.
5. Tax is levied on Total Income of every assessee computed in accordance with the provisions of the Act.
6. Total Income is calculated in accordance with the provisions of the Act as they stand on the 1 st Day of April in any
Assessment year.

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C. Five heads of Income

All income earned by the assessee are not chargeable to tax. There are certain incomes on which no tax is charged.
These are known as Exemptions or Income Exempt from Tax. All income earned by the assessee and chargeable to tax
is divided and classified into following five heads of Income:
1. SALARIES (Sections 15 to 17)
2. INCOME FROM HOUSE PROPERTY (Section 22 to 27)
3. INCOME AND GAINS OF BUSINESS OR PROFESSION (Section 28 to 44D)
4. CAPITAL GAINS (Section 45 to 55A)
5. INCOME FROM OTHER SOURCES (Section 56 to 59)
The sum of these 5 heads of income is known as GROSS TOTAL INCOME (Section 14). It is to be noted that tax is
charged on Total Income and not Gross Total Income. This Total Income is arrived at by reducing from Gross Total
Income Deduction allowable under Chapter VIA. Section 2(45) defines total income as “TOTAL INCOME” means
the total amount of income referred to in section 5, computed in the manner laid down in this Act.
D. Difference between certain terms used in Income Tax
(a) Heads of Income Vs. Source of Income
For the purposes of assessment all income chargeable to income tax have been divided into five categories viz.
Income from Salary; Income from House Property; Profits and Gains from Business of Profession: Capital Gains;
Income from Other Sources. These five categories of income are known as Heads of Income under the Income Tax
Act, 1961.
Under each head there may be several source of income. Sources of Income refer to the place of origination of a
particular income. Thus, an assessee may be carrying 3 businesses say, that of Chemical, Paper and Tea. In that
case these 3 businesses will constitute 3 sources of income all chargeable under the head Profits and Gains from
Business or Profession.
(b) Exemptions Vs. Deductions
Those items of income which do not form part of total income are known as Exemptions.
Example: Agricultural Income is Exempted from Tax U/s 10(1).
The provisions relating to Deductions are covered under Chapter VIA. Incomes from which deductions are allowed
are first included in Gross Total Income and then the deductions are allowed to arrive at Total Income. Thus, if there
is no Gross Total Income, no deductions will be permissible.
Example: Certain interest income are allowed as deduction from Gross Total Income U/s 80L.
(c) Association of Person Vs. Body of Individuals
(i) An AOP may consist of non individuals but BOI has to consist only of individuals.
(ii) An AOP implies a voluntary getting together for a common designed or combined will to engage in an income
producing activities, whereas a BOI may or may not have such a common design or will.

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RAJESH NANGALIA CLASSES 9903133927

Computation of total Income & Tax Liability

Assessee : PY :
Status : AY :
Computation :

Particulars Amount
Salaries -----------
Income from House Property -----------
PGBP ----------
Capital Gains ----------
Income from Other Sources ----------
(After Clubbing, Set Off & CF)
Gross Total Income ------------
Less : Deductions u/s 80’s -----------
Taxable Income / Total Income (Rounded off u/s 288A in multiples of Rs.10) ------------

Computation of Tax Liability of --------------- for the A.Y. 2023-24

Particulars Amount
Tax Liability on Total Income ----------
(Tax Liability before rebate & cess)
Less : Rebate u/s 87A (If Total Income <= Rs.5,00,000) -----------
Lower of Following :
- Actual Tax Liability
- Rs.12,500
Add : Surcharge ---------
1. If total Income exceeds Rs. 50,00,000 but upto 1 Crore = 10%
2. If total Income exceeds Rs. 1 Crore but upto 2 Crore = 15%
3. If total Income exceeds Rs. 2 Crore but upto 5 Crore = 25%
4. If total Income exceeds Rs. 5 Crore = 37%
Less : Marginal Relief (Only when there is surcharge) ---------
Additional Tax Liability including surcharge on income above Rs. 50L / 1CR / 2CR / 5CR should not exceed
additional income over Rs.50L / 1CR / 2CR / 5CR.
If exceeds then difference amount will be exempted as Marginal Relief.
Add : Health & Education cess @ 4% ---------
Tax Liability ---------
Less : --------
- Advance Tax
- TDS
Tax Payable (If +ve) or Refundable (If –ve) - (Rounded off u/s 288B in multiples of Rs.10) ----------

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Tax Rates for AY 2023-24

Case 1 : For Individual, HUF, AOP, BOI (Resident or Non-Resident)

Upto Rs.2,50,000 (Basic Exemption Limit) Nil
>Rs.2,50,000 upto Rs.5,00,000 5%
>Rs.5,00,000 upto Rs.10,00,000 20%
>Rs.10,00,000 30%

Case 2 : For Senior Citizen (Resident Individual age 60 Years or more in PY)
Upto Rs.3,00,000 (Basic Exemption Limit) Nil
>Rs.3,00,000 upto Rs.5,00,000 5%
>Rs.5,00,000 upto Rs.10,00,000 20%
>Rs.10,00,000 30%

Case 3 : For Super Senior Citizen (Resident Individual age 80 Years or more in PY)
Upto Rs.5,00,000 (Basic Exemption Limit) Nil
>Rs.5,00,000 upto Rs.10,00,000 20%
>Rs.10,00,000 30%

Case 4 : For Partnership Firm / LLP / Local Authority

 Tax Rate = 30%
 Surcharge = @ 12% of Tax if Total Income >Rs.1 Crore

Special Rates in Case of Capital Gains :

Section 112A :
 Tax on LTCG on transfer of Equity Shares or Equity Oriented Fund or Units of Business Trust in excess of
Rs.1,00,000 shall be taxable @10% (Provided STT paid on its acquisition & Transfer).
 In case of LTCG on Listed Securities (other than units) & Zero Coupon Bonds, Assessee can pay tax
 10% Without indexation
 20% With indexation
 In case of LTCG on other Capital Assets, Assessee should pay tax @ 20% With indexation.

Section 111A :
 STCG on transfer of Equity Shares or Equity Oriented Fund or Units of Business Trust shall be taxable @15%
if STT paid on transfer of such assets.
 In case of STCG on other Capital Assets, Assessee should pay tax @ Normal Tax Rate.

Section 115BB - Casual Income like Winning from Lotteries, Crossword Puzzles etc
 In case of Casual Income, Assessee should pay tax @ 30%.

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Section 115BAC: With effect from(W.E.F) PY 20-21

new optional tax regime is introduced for Individual/HUF (for all-resi, NR, senior citizen,
all) Subject to non deduction of some expenses, deduction, exemption (See Total
Income

Total Income Tax Rate (under the new regime)

Up to Rs. 2,50,000 Nil
>2,50,000 -Rs. 5,00,000 5%
>5,00,000 -Rs. 7,50,000 10%
>7,50,000 -Rs. 10,00,000 15%
>Rs. 10,00,000- Rs. 12,50,000 20%
>Rs. 12,50,000 -Rs. 15,00,000 25%
> Rs. 15,00,000 30%

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Marginal Relief :
 It is applicable in case of All Assessee where surcharge is applicable.
 You have to check marginal relief concept when total income is little bit more than
Rs.50 Lakhs/ 1 Crore/ 2 Crore/ 5 Crore (in case of Individual/HUF/AOP/BOI) or 1 Crore (in case
of Company/ Firm/ Local Authority/ Co-Operative Society)`or 10 Crore (in case of Company)

Example 1 :
Total Income of Mr. Ram, a Non – Resident (age 62 years) is Rs.1,01,00,000

Tax on Total Income Rs.

Upto 2,50,000 NIL
>2,50,000 upto 5,00,000 12,500
>5,00,000 upto 10,00,000 1,00,000
>10,00,000 upto 1,01,00,000 27,30,000 28,42,500

Add : Surcharge @ 15% 4,26,375

32,68,875
Marginal Relief
Rs. 75,125
Restricted to
Tax on 1 Crore + (Total Income – 1 Crore) 31,93,750
(30,93,750 + 1,00,000) 31,93,750

Add : Health & Education Cess @4% 1,27,750

Tax Payable 33,21,500

Tutorial Notes :
Additional Tax Liability including surcharge on income above Rs. 50L / 1CR / 2CR / 5CR should not exceed additional
income over Rs.50L / 1CR / 2CR / 5CR.
If exceeds then difference amount will be exempted as Marginal Relief.

Example 2 :
Total Income of Mr. Shyam, a Resident Individual (age 49 years) is Rs.5,07,20,000
Tax on Total Income Rs.
Upto 2,50,000 NIL
>2,50,000 upto 5,00,000 12,500
>5,00,000 upto 10,00,000 1,00,000
>10,00,000 upto 5,07,20,000 1,49,16,000 1,50,28,500

Add : Surcharge @ 37% 55,60,545

2,05,89,045
Marginal Relief
Rs. 13,53,420
Restricted to
Tax on 5 Crore + (Total Income – 5 Crore) 1,92,35,625
(1,85,15,625 + 7,20,000) 1,92,35,625
Add : Health & Education Cess @4% 7,69,425
Tax Payable 2,00,05,050

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Rebate u/s 87A :

For Resident Individuals having Total Income upto Rs.5,00,000.

 100% of Tax Payable, or

 Rs.12,500
Whichever is Lower

This rebate shall be reduced before adding Education Cess.

Example 1 : Rs.
Total Income of Mr. RN, aged 28 years 4,40,000

Tax on Rs.4,40,000 9,500

Less : Rebate u/s 87A
 100% of Tax Payable, or
 Rs.12,500 9,500
NIL
Add : Health & Education Cess NIL
Net Tax Payable NIL

Example 2 : Rs.
Total Income of Mr. Ravi, aged 35 years 5,07,000

Tax on Rs.5,07,000 13,900

Add : Health & Education Cess @4% 556
Net Tax Payable 14,456

Rounded off u/s 288B 14,460

Tutorial Notes
 In the above example rebate is not available since Total Income is more than Rs.5,00,000.
 Rebate u/s 87A is available against all types of Income except LTCG u/s 112A.
 Total Income & Tax Amount should be rounded off to the nearest Rs. of 10.

Computation of Tax Liability when there is Agricultural Income exceeding Rs.5,000

Step 1 : Compute tax Liability on (Non Agricultural Income + Agricultural Income)

Step 2 : Compute Tax Liability on (Maximum Exemption Limit + Agricultural Income)

Step 3 : Tax Liability before Rebate & Surcharge on Non Agricultural Income will be : (Step 1 – Step 2)

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