LET US RECAPITULATE Income-tax is the most significant direct tax. Entry 82 of the Union List i.e., List | of Seventh Schedule to Article 246 of the Constitution of India has given the power to Parliament to make laws on taxes on income other than agricultural income. Components of income-tax law + Income-tax Act, 1961 — governs the levy of income-tax in India. + Income-tax Rules, 1962 - formulated for proper administration of the Act. * Annual Finance Act - Amendments in the Income-tax Act, 1961 are effected every year through the Annual Finance Act. * Circulars — issued by CBDT to clarify the meaning and scope of certain provisions of the Act. + Notifications — issued to give effect to the provisions of the Act/ make or amend Rules. * Court decisions - interprets the various provisions of income-tax law. Income-tax is a TAX levied on the TOTAL INCOME of the PREVIOUS YEAR of every PERSON. (1) Person: A person includes an individual, Hindu Undivided Family (HUF), Association of Persons (AOP), Body of Individuals (BOI), a firm, a company etc. (2) Concept of Previous year (P.V.) and Assessment Year (A.Y. year is the financial year immediately preceding the assessment year ic,, it is the financial year ending on 31% March, in which the income has accrued/received. In case of a newly set-up business, the previous year would be the period beginning with the date of setting up of the business or profession or, as the case may be, the date on which the source of income newly came into existence, and ending on 31* March. Assessment year (A.Y.): Assessment year means the period of twelve months commencing on the 1* April every year. Exceptions to the rule that income is charged to income-tax in the Assessment Year following the previous year: The income of an assessee for a previous year is charged to income-tax in the assessment year following the previous year. However, in the following cases, © The Institute of Chartered Accountants of IndiaAE come Tax Law this rule does not apply and the income is taxed in the previous year in which it is earned. (i) Shipping business of non-resident [Section 172] (ii) Persons leaving India [Section 174] (iii) AOP/BOI/Artificial Juridical Person formed for a particular event or purpose [Section 174A] (iv) Persons likely to transfer property to avoid tax [Section 175] (v) Discontinued business [Section 176] Rate of tax for Undisclosed Sources of Income: The following undisclosed incomes are chargeable to tax @78% [i.e., 60% plus surcharge @25% plus cess @4%] as specified under section 115BBE: (i) Cash Credits (Section 68] (ii) Unexplained Investments [Section 69] (iii) Unexplained money etc. [Section 694] (iv) Amount of investments etc,, not fully disclosed in the books of account {Section 698] (v) Unexplained expenditure [Section 69C] (vi) Amount borrowed or repaid on hundi [Section 69D] (3) Total Income: Total income has to be computed as per the provisions contained in the Income-tax Act, 1961. The following steps has to be followed for computing the total income of an assessee: Step 1 — Determination of residential status Step 2 - Classification of income under different heads Step 3 - Computation of income under each head after providing for permissible deductions/ exemptions Step 4 — Clubbing of income of spouse, minor child etc. Step 5 — Set-off or carry forward and set-off of losses Step 6 - Computation of Gross Total Income Step 7 - Deductions from Gross Total Income Step 8 - Computation of Total income (4) Tax liability: Tax has to be computed by applying the rates of tax mentioned in the Annual Finance Act and the rate specified under the Income- tax Act, 1961, as the case may be. © The Institute of Chartered Accountants of IndiaPersons Rate of taxes Individual (not the Total income (in 2) Rate of Tax P of | (i) Upto % 2,50,000 (below 60 years) Nil section 115BAC) (ii) Upto % 3,00,000 (60 years or above but less than 80 years and resident in India) (iii) Upto % 5,00,000 (above 80 years and resident in India) % 2,50,001/ % 3,00,001, as the case 5% may be, to & 5,00,000 [in cases (i) and (ii) above, respectively] %5,00,001 to 10,00,000 20% Above % 10,00,000 30% Hindu Undivided Family (HUF) (not Total income (in ®) Rate of Tax opting for the Upto % 2,50,000 Nil provisions of Rrction 11SBACY | © 2502001 to & 5,00,000 5% Association of _ © 5,00,001 to € 10,00,000 20% Persons = (AOP)/_ Above % 10,00,000 30% Body of Individuals (BOl/ Artificial Juridical Person Firm/LLP/local 30% authority Co-operative Total income (in 2) Rate of Tax Society (not opting for the provisions | UPto 10,000 10% ofsection 115BAD) | z 10,001 to % 20,000 20% Above ¥ 20,000 30% © The Institute of Chartered Accountants of Indiacome Tax Law income and capital gains chargeable to tax u/s 111A and 112A)> € 2 crore but is < € 5 crore Rate of surcharge on th on the portion of dividend income and capital gains chargeable to tax u/s 111A and 112A Company —(not Domestic Company Foreign opting for the Company provisions of || Total turnover or Other section gross receipts in the | domestic 115BAA/115BAB) P.Y. 2018-19 < companies 7400 crore 25% 30% 40% Surcharge Individual/ HUF/ AOP/ BOI/ Artificial juridical person (i) | Where the total income (including dividend 10% income and capital gains chargeable to tax u/s 111A and 112A) >% 50 lakh but is < @ 1 crore (ii) | Where the total income (including dividend 15% income and capital gains chargeable to tax u/s 111A and 112A)> @ 1 crore but is < % 2 crore (iii) |- Where the total income (excluding dividend 25% income-tax payable | Not exceeding 15% (iv) Where the total income (excluding dividend income and capital gains chargeable to tax u/s 111A and 112A)> ® 5 crore 37% Rate of surcharge on the income-tax payable | Not exceeding 15% on the portion of dividend income and capital gains chargeable to tax u/s 111A and 112A. w) Where the total income (including dividend income and capital gains chargeable to tax u/s 111A and 112A) > % 2 crore in cases not covered in (ii) and (iv) above 15% © The Institute of Chartered Accountants of IndiaFirm/Limited Liability Partnership/Local_Authorities/Co-operative societies (other than co-operative societies opting for section 115BAD) Where the total income > % 1 crore 12% Domestic company (other than a domestic company opting for section 115BAA or section 115BAB) Total income > @ 1 crore but is < % 10 crore 7% Total income is > % 10 crore 12% Foreign company Total income > 1 crore but is < 10 crore 2% Total income is > % 10 crore 5% Rebate under section 87A: Rebate of up to ® 12,500 for resident individuals having total income of up to @ 5 lakh. “Health and Education cess” on Income-tax: 4% of income-tax and surcharge, if applicable © The Institute of Chartered Accountants of IndiaTO come Tax Law TEST YOUR KNOWLEDGE Question 1 Who is an “Assessee"? Answer As per section 2(7), assessee means a person by whom any tax or any other sum of money is payable under the Income-tax Act, 1961. In addition, the term includes ~ + Every person in respect of whom any proceeding under the Act has been taken for the assessment of — . his income; or * the income of any other person in respect of which he is assessable; or * the loss sustained by him or by such other person; or * the amount of refund due to him or to such other person. = Every person who is deemed to be an assessee under any provision of the Act; = Every person who is deemed to be an assessee in default under any provision of the Act. Question 2 State any four instances where the income of the previous year is assessable in the previous year itself instead of the assessment year. Answer The income of an assessee for a previous year is charged to income-tax in the assessment year following the previous year. However, in a few cases, the income is taxed in the previous year in which it is earned. These exceptions have been made to protect the interests of revenue. The exceptions are as follows: () Where a ship, belonging to or chartered by a non-resident, carries passen- gers, livestock, mail or goods shipped at a port in India, the ship is allowed to leave the port only when the tax has been paid or satisfactory arrangement has been made for payment thereof. 7.5% of the freight paid or payable to the owner or the charterer or to any person on his behalf, whether in India or © The Institute of Chartered Accountants of India