Income TaIncome Tax - Educationist€¦ · Less:- Deductions under Chapter VIA 80C to 80U TOTAL INCOME OR NET INCOME (Rounded off to nearest Rs.10* as per Section 288A. Tax on Total

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Income TaIncome Tax(A.Y. 2011-12)(A.Y. 2011 12)

What is a Finance Bill?a) The Finance Bill incorporates all the financiala) The Finance Bill incorporates all the financial

proposals of the Government for the following year.year.

b) It is ordinarily introduced in the Lok Sabha every year, immediately after the Budget is presented.

c) This Bill has to be considered and passed by the Parliament and assented to by the President

ithi 75 d ft it i t d tiwithin 75 days after its introduction.d) This Bill is classified as a Money Bill.

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BASIC TAX FRAME WORK :Section 4 – Charging Section(Total 298 sections)

Income Tax Act 1961 has been divided into Chapters I to XXIII and h  XIV  h d lhas XIV schedulesIncome chargeable at rates prescribed by Finance Act.The duration is counted for each financial year i e From 1st April toThe duration is counted for each financial year i.e From 1 April to 31st MarchRate of Tax for an assessment year is fixed by the Finance Act every 

  d  t b  th  i  t  A t  year and not by the income tax Act. If on a particular 1st. April of any assessment year the Finance Act has not got the assent of the president of India then for that 

h d h llassessment year the rates as proposed in the Finance Bill or the rates applicable to immediately preceding assessment year , whichever is beneficial to the assessee will apply until the new provision become effective..

COMPONENTS OF INCOME TAX LAW

The law governing such tax, its levy and its collection:•Is specified in Act called “Income Tax Act 1961”

i l d di h l l id d i h “•Is implemented according to the rules laid down in the “Income TaxRules 1962”.•Is administered through circulars issued by the highest authority ofIncome tax “Central Board of Direct Taxes ”Income tax Central Board of Direct Taxes•Is interpreted by the judgment of cases, which are heard and decidedby “Supreme Court” or “High Court”.So we can say that components of income tax law are:So we can say that components of income tax law are:•Income Tax Act 1961.•Annual Finance Acts•Income Tax Rules 1962•Circulars and Notifications•Legal Decisions of Courts

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Based on their character definitions are generally of two types (i) i l i i idi h t ll i d b ifi ti hil(i) inclusive - i.e. providing what all is covered by specification while

leaving the scope open to others also to be covered within the ambit of the provision,

(ii) exclusive (or 'means' definition) i e those providing an exhaustive(ii) exclusive (or means definition) - i.e. those providing an exhaustive meaning to the term and no other meaning is permissible.

Bharat Cooperative Bank (Mumbai) Ltd. v. Employees Union (2007) 4 SCC 685

Therefore, the use of the word “means” followed by the word “includes” in the definition of“banking company” in Section 2(bb) of the ID Act is clearly indicative of the legislative intentto make the definition exhaustive and would cover only those banking companies which faly g pwithin the purview of the definition and no other.”

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Charge of Income TaxIncome tax is charged in assessment year at ratesspecified by the Finance Act applicable on 1st April ofthe relevant assessment yearthe relevant assessment year.It is charged on the total income of every person forthe previous yearthe previous year.Total Income is to be computed as per the provisionsof the Act.Income tax is to be deducted at source or paid inadvance wherever required under the provision of theAAct.

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India means the territory of India as referred to in Article 1 of the Constitution, its territorial waters, seabed and subsoil underlying such , , y gwaters, continental shelf, exclusive economic zone or any other maritime zone as referred to in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other maritime Zones Act, 1976 and the air space above its territory and territorial waters

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space above its territory and territorial waters

INTRODUCTIONINTRODUCTIONThe Factors Affecting the Tax Liability of an

Individual in India are:His Residential StatusPlace of accrual or receipt of income.Meaning of Indiag

The forth character

Important Definitions

( ) l d

of the PAN must be one of the following, depending on the1. Person u/s 2(31) includes,

i. An Individual,ii Hi d U di id d F il (HUF)

depending on the type of assesse:

C - Companyii. Hindu Undivided Family (HUF),iii. A Company,iv A Firm

P - PersonH — HUF (Hindu Undivided Family)F — Firmiv. A Firm,

v. An Association of Persons(AOP) or Bodyof Individuals (BOI),

F — FirmA — Association of Persons (AOP)T — AOP (Trust)

vi. A Local Authority,vii. Every other Artificial Juridical Person

B — Body of Individuals (BOI)L — Local AuthorityJ — Artificial

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J Artificial Juridical PersonG — Govt

EXAMPLE 1: Classification of following persons into various categories:•Mr. Pankaj will be regarded as an Individual.j g•RIL. Ltd will be regarded as a Company.•Joint family of Mr. PG ; Mrs. PG; their one daughter shall be regarded as HUF.•M/S DBA shall be regarded a partnership firm with 3 partners named Mr D; Mr B; MrM/S DBA shall be regarded a partnership firm with 3 partners named Mr. D; Mr. B; Mr.A.•Pankaj housing co-operative society shall be regarded as AOP.B il f t h ll b d d AOP•Bar council of a court shall be regarded as AOP.

•Mr. A and Mr. B are the sons of Mr. J. After the death of Mr. J, his two sons are carryingon his business without entering into a partnership; this relationship between Mr. A andMr B shall be regarded as AOP/BOIMr. B shall be regarded as AOP/BOI.

•Delhi University shall be regarded as artificial juridical person.

Contd…2. Assessment Year u/s 2(9) means, the period of 12

months commencing on the 1st April every year. It isthe year (just after previous year) in which income isthe year (just after previous year) in which income isearned is charged to tax. The current Assessment is2011‐2012.

3. Previous Year u/s 2(34) means, the year in whichincome is earned.

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Previous year in case of a continuing business: It is the• Previous year in case of a continuing business:- It is the financial year preceding the assessment year. As such of the assessment year 2006-07, the previous year for a continuing business is 2005-06 i.e. 1-4-2005 to 31-3-2006.

• In case of newly set up business:- The previous year in case of a new started business shall be the period betweencase of a new started business shall be the period between commencement of business and 31st March next following e.g. in case of a newly started business commencing its operations on Diwali 2005 the previous year in relation tooperations on Diwali 2005, the previous year in relation to assessment year 2006-07 shall be period between Diwali 2005 to 31st March 2006.

• In case of newly created source of income:- In such case the previous year shall be period between the day on which such source comes into existence and 31st March

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which such source comes into existence and 31 March next following.

Contd…G l (G ) h i4. Gross Total Income (G.T.I) :‐ The aggregate incomeunder the 5 heads of income (viz. Salary, HouseProperty Business or Profession Capital Gains &Property, Business or Profession, Capital Gains &Other Sources) is termed as “Gross Total Income”.

5. Total Income (T.I) :‐ Total Income of assessee is gross5 gtotal income as reduced by the amount permissibleas deduction under sections 80C to 80U.

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Index

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RATES OF INCOME TAXRATES OF INCOME TAX  

1. In case of every Individual/ HUF/ AOP/BOI artificial juridical Person.

INCOME INCOME (A.Y.(A.Y. 20112011‐‐12)12)

TAX RATETAX RATE

U  t   6 NILUp to 160000 NILNext 340000 10%Next 300000 20%3Above 800000 30%

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Contd…2. In case of resident women below 65 years of age.

INCOME INCOME  TAX RATETAX RATE(A.Y.(A.Y. 20112011‐‐12)12)

Up to 190000 NILNext 310000 10%3 %Next 300000 20%Above 800000 30%

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Contd…I     f  id t  i   iti  i     f 6  3. In case of resident senior citizen i.e. age of 65 years or above

INCOME INCOME (A Y(A Y ))

TAX RATETAX RATE(A.Y.(A.Y. 20112011‐‐12)12)

Up to 225000 NILNext 275000 10%Next 300000 20%Above 800000 30%

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Contd…PERSONS TAX RATE

FIRMSFIRMS 30%30%DOMESTIC COMPANYDOMESTIC COMPANY 30%30%FOREIGN COMPANYFOREIGN COMPANY 40%40%

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Surcharge & CessPERSON RATE OF SURCHARGE

FirmFirm 10%/7.5% of 10%/7.5% of tax liabilitytax liability, if Income exceeds Rs. 1 , if Income exceeds Rs. 1 CroreCrore

Domestic CompanyDomestic Company 10%/7.5% 10%/7.5% of of tax liability,tax liability, if Income exceeds Rs. 1 if Income exceeds Rs. 1 CCp yp y CroreCrore

Foreign companyForeign company 2.5% 2.5% of of tax liability,tax liability, if Income exceeds Rs. 1 Croreif Income exceeds Rs. 1 Crore

CoCo‐‐operative Societyoperative Society N.A.N.A.

Local AuthorityLocal Authority N.A.N.A.

EducationEducation CessCess andand SecondarySecondary && HigherHigher EducationEducation CessCess isis applicableapplicable onon everyeverypersonperson@@ 22%% && 11%% respectivelyrespectively onon taxtax liabilityliability andand surchargesurcharge applicable,applicable, ifif anyany..

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HEADS OF INCOME‐Section 14HEADS SECTIONS AMOUNT

1.Salary 15 to 17

2 Income from House property 22 to 272.Income from House property 22 to 27

3.Profits and gains from business and profession 28 to 44

4.Capital Gain 45 to 55A

5.Income from other sources 56 to 59

GROSS TOTAL INCOME

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Less:- Deductions under Chapter VIA 80C to 80U

TOTAL INCOME OR NET INCOME (Rounded off to nearest Rs.10* as per Section 288A.

Tax on Total Income

Add:- Surcharge (Wherever applicable)

Total Tax and Surcharge

Add: - 3% EC (i.e. 2% Education Cess and 1 %( Secondary and higher education cess)

L R b t f T S ti 86(T i h fAOP/BOI) S ti 89 (S l t i d i 86 89 90Less:- Rebate from Tax-Section 86(Tax on income on share ofAOP/BOI) Section 89 (Salary etc. received in arrears or advance), Section 91 (Tax paid in foreign countries on income accrued or aroused outside India, where no double taxation agreement is made)

86, 89, 90 and 91

Net Tax Liability

Less: - (i). TDS/TCS (ii). Advance Tax

Balance payable on self Assessment

LESS: - Self Assessment tax paidLESS: Self Assessment tax paid

Balance NIL

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ROUNDED OFF OF INCOME88A  Th     f  l i   d i   d   i h 288A. The amount of total income computed in accordance with the foregoing provisions of this Act shall be rounded off to the nearest multiple of ten rupees and for this purpose any part of a p f p f p p y p frupee consisting of paisa shall be ignored and thereafter if such amount is not a multiple of ten, then, if the last figure in that amount is five or more  the amount shall be increased to the amount is five or more, the amount shall be increased to the next higher amount which is a multiple of ten and if the last figure is less than five, the amount shall be reduced to the next l     hi h i     l i l   f    d  h      lower amount which is a multiple of ten; and the amount so rounded off shall be deemed to be the total income of the assessee for the purposes of this Act.f p p fEXAMPLE:‐ Total Income 230402.75= 230402.00= 203400.00Total Income 250508.65= 250508.00= 250510.00

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ROUNDED OFF OF TAXbl d h f f d288B. Any amount payable, and the amount of refund 

due, under the provisions of this Act shall be rounded off to the nearest multiple of ten rupees and for this off to the nearest multiple of ten rupees and for this purpose any part of a rupee consisting of paise shall be ignored and thereafter if such amount is not a multiple of ten, then, if the last figure in that amount is five or more, the amount shall be increased to the next higher amount which is a multiple of ten and if the last figure amount which is a multiple of ten and if the last figure is less than five, the amount shall be reduced to the next lower amount which is a multiple of ten.EXAMPLE:‐ Tax payable‐ 10703.40 =10703.00=10700.00Tax payable‐ 11717.80=11717.00= 11720.00 

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Assessee means any person by whom any tax or any other sum of money is payable under this Act and coversThe above definition divides various types of assessees into three categories:-1. Ordinary assessee ----- it includes

any person against whom some proceedings under this Act are going on. It is immaterial whether any tax or other amount is payable by him orIt is immaterial whether any tax or other amount is payable by him or not;

any person who has sustained loss and filed return of loss u/s 139(3);any person by whom some amount of interest, tax or penalty isany person by whom some amount of interest, tax or penalty is

payable under this Act; orany person who is entitled to refund of tax under this Act.

2. Representative assessee or deemed assessee:-A person may not be liable only for his own income or loss but also on the

income or loss of other persons e.g. agent of a non-resident, guardian of minor or lunatic etc. In such cases, the person responsible for the assessment of income of such person is called representative assesses. Such person is deemed to be an assessee

3. Deemed Assessee•In case of a deceased person who dies after writing his willIn case of a deceased person who dies after writing his will the executors of the property of deceased are deemed as assessees.I di i t t t ( ith t iti hi ill) hi•In case a person dies intestate (without writing his will) his

eldest son or other legal heirs are deemed as assesses.•In case of a minor, lunatic or idiot having income taxable under Income-tax Act, their guardian is deemed as assessee.•In case of a non-resident having income in India, any person acting on his behalf is deemed as asseesseeacting on his behalf is deemed as asseessee.

•Assessee-in-default:- A person is deemed to be an assessee-in-default if he fails to fulfill his statutory obligations. In case of an

l i l h i i i t t it iemployer paying salary or a person who is paying interest it is their duty to deduct tax at source and deposit the amount of tax so collected in Government treasury. If he fails to deduct tax at

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source or deducts tax but does not deposit it in the treasury, he is known as assessee-in-default.

Previous Year Exceptions-Class NOTES

PREVIOUS YEAR FOR A NEWLY SET UP BUSINESS OR NEWLY SET UP PROFESSION OR IN CASE OF A NEWPREVIOUS YEAR FOR A NEWLY SET UP BUSINESS OR NEWLY SET UP PROFESSION OR IN CASE OF A NEW SOURCE OF INCOME-PROVISO TO SECTION 3This section states that in case of a newly set up business or in case of a newly set up profession orin case of a new source of income coming into existence in any particular financial yearin case of a new source of income coming into existence in any particular financial year then first Previous Year will begin from the date of such newly set up business or profession or a new source of income coming into existence and ends with the end of such financial year.

Mr. J starts the business of cloth on 15/12/2010. In this case his FIRST previous year will be from 15/12/2010 to 31/3/2011 and his first AY will be 2011-2012. However his subsequent PY will start from 1/4/2011 till 31/3/2012 and so on.

Mr. J is working in ABC Ltd. getting salary income of Rs. 1,50,000 pa. Mr. J starts the business of cloth on 15/12/2010. In this case he will have 2 different PY for his 2 different incomes. For his salary income his PY shall be from 1/4/2010 till 31/3/2011 but for his business income his previous year will be from 15/12/2010 to 31/3/2011. However for the tax purposes both of the incomes shall be aggregated and tax shall be imposed in the AY 2011-2012.

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