What Is Income Tax?
❑ Income tax is a type of tax governments impose on income
generated by businesses and individuals within their
jurisdiction.
❑ Income tax is used to fund public services, pay government
obligations, and provide goods for citizens.
❑ The federal government and many states, as well as local
jurisdictions, levy their own income taxes.
❑ Personal income tax is a type of income tax levied on an
individual’s wages, salaries, and other types of income.
❑ Business income taxes apply to corporations, partnerships,
small businesses, and the self-employed.
Income and Its Types
INCOME : Section 2 (24)
❑The definition of the term “income” in section 2(24) is inclusive
and not exhaustive.
❑The term “income” not only includes those things that are
included in section 2(24) but also includes those things that the
term signifies according to its general and natural meaning.
❑Income, in general, means a periodic monetary return which
accrues or is expected to accrue regularly from definite sources.
❑However, under the Income-tax Act, 1961, even certain income
which do not arise regularly are treated as income for tax
purposes e.g. Winnings from lotteries, crossword puzzles.
Section 2(24) of the Act gives a statutory definition of income.
At present, the following items of receipts are included in income:—
(1)Profits and gains.
(2)Dividends.
(3)Voluntary contributions received by a trust/institution created
wholly or partly for charitable or religious purposes or by an
association or institution
(4) The value of any perquisite or profit in lieu of salary taxable under
section 17.
(5) Any special allowance or benefit other than the perquisite,
necessarily and exclusively for the performance of the duties of an
office or employment of profit.
(6) Any allowance granted to the assessee to meet his personal
expenses at the place where the duties of his office or employment of
profit are ordinarily performed by him or at a place where he ordinarily
resides or to compensate him for the increased cost of living.
(7) The value of any benefit or perquisite whether convertible into
money or not, obtained from a company
(8) The value of any benefit or perquisite, whether convertible into
money or not, which is obtained by any representative assessee
mentioned under section 160(1)(iii) and (iv).
(9) Deemed profits chargeable to tax under section 41 or section 59.
(10) Profits and gains of business or profession chargeable to tax under
section 28.
(11) Any capital gains chargeable under section 45.
(12) The profits and gains of any insurance business carried on by
Mutual Insurance Company or by a cooperative society, computed in
accordance with Section 44
(13) The profits and gains of any business of banking (including
providing credit facilities) carried on by a co-operative society with
its members.
(14) Any winnings from lotteries, cross-word puzzles, races
including horse races, card games and other games of any sort or
from gambling, or betting of any form or nature whatsoever.
(15) Any sum received by the assessee from his employees as
contributions to any provident fund or superannuation fund or
Employees State Insurance Fund (ESI) or any other fund for the
welfare of such employees.
(17) Any sum referred to clause (va) of Section 28. Thus, any sum,
whether received or receivable in cash or kind, under an agreement
for not carrying out any activity in relation to any business; or not
sharing any know-how, patent, copy right, trade-mark, license,
franchise etc.
(18) Any sum of money or value of property referred to in section
56(2)(vii) or section 56(2)(viia).
(19) Any consideration received for issue of shares as exceeds the
fair market value of shares referred to in section 56(2)(viib).
Gross Total Income Sec: 80 b ( 5)
As per section 14, the income of a person is computed under the
following five heads:
1. Salaries.
2. Income from house property.
3. Profits and gains of business or profession.
4. Capital gains.
5. Income from other sources.
(The aggregate income under these heads is termed as “gross total
income”)
Total Income Sec : 2(45)
Total income means the amount left after making the deductions
under section 80C to 80U from the gross total income.
I.3 Casual Income
Any receipt which is of a casual and non-recurring nature is called
casual income. Casual income includes the following receipts:
1. Winning from lotteries,
2. Winning from crossword puzzles,
3. Winning from races (including horse races),
4. Winning from card games and other games of any sort
5. Winning from gambling or betting of any form or nature.
Basis Of Charge Of Income Tax Sec : 4
To know the procedure for charging tax on income, one should be
familiar with the following:
1. Annual tax - Income-tax is an annual tax on income.
2. Tax rate of assessment year - Income of previous year is chargeable
to tax in the next following assessment year at the tax rates applicable
for the assessment year. This rule is, however, subject to some
exceptions
3. Rates fixed by Finance Act - Tax rates are fixed by the annual
Finance Act and not by the Income-tax Act.
4. Tax on person - Tax is charged on every person
5. Tax on total income - Tax is levied on the “total income” of every
assessee computed in accordance with the provisions of the Act.
Surcharge for Assessment Year 2023-24
Rebate u/s 87A
(AY 2021-22 2022-23, 2023-24, and 2024-25)
Under both the old and new income tax regimes, the amount of
the refund under Section 87A for FY 2021-22 2022-23 [(AY (2022-
23) (2023-24)] has remained unchanged. A resident individual
with taxable income up to Rs 5,00,000 will be eligible for a tax
rebate of Rs 12,500, or the amount of tax payable (whichever is
lower).
Under the new income tax regime, the amount of the rebate under
Section 87A for FY 2023-24 (AY 2024-25) has been modified. A
resident individual with taxable income up to Rs 7,00,000 will
receive a Rs 25,000 tax relief.
The former tax regime remains the same, i.e. 12,500 for income
up to Rs 5,00,000.
