Direct tax laws

BASIC CONCEPTS AND DEFINITION

PRESENTED BY:-
DR. SACHIN A. BOTHRA
MEANING OF TAX:-
 Tax is the compulsory financial charge levy by the
government on income, commodity, services,
activities or transaction. The word ‘tax’ derived from
the Latin word ‘Taxo’.
 Taxes are the basic source of revenue for the
government, which are utilized for the welfare of the
people of the country through government policies,
provisions and practices.
 In India, Income Tax was first time introduced in the
year 1860 by Sir James Wilson in order to meet the loss
caused on account of ‘military mutiny’ in 1857.
Types of Taxes:-
 Taxes are levied by the government on the taxpayer. Taxes are
broadly divided into two parts namely, Direct Tax and Indirect
Tax.
 Direct Tax is levied directly on the income of the person.
Income Tax and Wealth Tax are the part of Direct Tax.
 Whereas, in indirect taxes, the person who pays the tax, shifts
the burden to the person who consumes the goods or services.
 Before 2017 the Indirect Tax comprises of various taxes and
duties like Service Tax, Sales Tax, Value Added Tax, Customs
Duty, Excise Duty, etc.
 From July 1st, 2017 all such Indirect Taxes are submerged in one
tax law which was named as ‘The Goods and Services Tax Act,
2017”.
Basic Concept of Income Tax Act:-
 “Income Tax is levied on the total income of the previous year
of every person”.
To understand the basic concept. It is very important to know the
various other concepts.
Concept of Income:-
 In common parlance, Income is known as a regular periodic
return to a person from his activities. However, the Income has
broader classified in Income Tax law. The Income Tax Act,
even take consideration of income which has not arisen
regularly and periodically. For instance, winning from lotteries,
crossword puzzles, income from winning of shows is also
subject to tax as per income tax.
Definition of INCOME AS PER Section 2 (24):-
Income includes :
 Profits and gains
 Dividend
 Voluntary Contributions received by a trust.
 The value of any perquisite or profit in lieu of salary taxable under
section 17(2)(3)
 Any special allowance or benefit, specifically granted to the assessee
to meet expenses wholly, necessarily and exclusively for the
performance of the duties of an office or employment
 Any allowance granted to the assessee either to meet his personal
expenses at the place where the duties of his office or employment
 Value of any benefit or amenity, whether convertible into money or
not, obtained by a representative assessee
 Any capital gain taxable under section 45
 The profit and gains of any business
 Any winnings from lotteries, crossword puzzles, races including horse
races, card games and other games of any sort or from gambling or
betting of any form or nature whatsoever
 Any sum received by the assessee as his employers’ contributions to
any provident fund or superannuation fund or any other fund for the
welfare of’ such employees
 Any sum received under a key man insurance policy including the
sum allocated by way of bonus on such policy
 An aggregate amount of gift or gifts received (whether in cash or in
the form of property) exceeding Rs. 50,000 in a previous year by an
individual or Hindu undivided family from non-relatives shall be
treated as income
 Gifts received by a firm or closely held company as provided in
Section 56(2)(viia).
 Person:-
Income tax is levied on the total income of the previous year of every person. In
general terms, the meaning of a person can be interpreted in a short term.
Whereas, as per Section 2 (31), Person includes:
i. an individual,
ii. a Hindu undivided family (HUF),
iii. a company,
iv. a firm,
v. an association of persons (AOP) or a body of individuals (BOI), whether
incorporated or not,
vi. a local authority, and
vii. every artificial juridical person (AJP), not falling within any of the preceding
sub-clauses.
The definition of Person starts with the word includes, therefore, the list is
inclusive, not exhaustive.
 Assessment Year:-
 “Assessment Year” means the year in which income of the previous year of
an assessee is taxed/Assessed. The timed lap of assessment year is of twelve
months beginning from the 1st April every year. The period starts from 1st
April of one year and ending on 31st March of next year. Broadly,
assessment year is defined under section 2 (9) of the Act.
 Previous Year:-
 Income earned during the year is taxable in the next year. The definition of
“Previous Year” is given under section 3 of the Act. Previous Year is the year
in which income is earned. Previous year is the financial year immediately
preceding the relevant assessment year. From 1989-90 onwards, every
taxpayer is obliged to follow financial year (i.e., April 1st of one year to
March 31st of next year) as the previous year.
 For a newly set up business or profession, the first previous year will start from
the day from which that business or profession has commenced, but the
period of ending will remains same (i.e., 31st March).
 Assessee:-
 An assessee is a taxpayer means a person who under the income tax
act is subject to pay taxes or any other sum of money, as defined
under section 2 (7) of the Act. The expression ‘any other sum of
money’ includes other such obligations payable, for instance fine,
interest, penalty and other tax etc.
 An assessee is any individual who is liable to pay taxes to the
government against any kind of income earned or any losses incurred
by him for a particular assessment year. Each and every person who
has been taxed in the previous years for income earned by him is
treated as an Assessee under the Income Tax Act, 1961.
 An Assessee may be any individual liable to pay taxes for himself or to
pay tax on behalf of somebody else. The Income Tax Act, 1961 has
classified Assessee in different categories. An Assessee may either be
a normal Assessee, a Representative Assessee, a Deemed Assessee or
an Assessee in Default.
 Nominal Assessee:
A normal Assessee is an individual who is liable to pay taxes for the
income earned by him for a particular financial year.
 Representative Assessee:
Many times, it so happens that an individual is liable to pay taxes for
income or losses incurred not only by him, but also for income or losses
incurred by a third party. Such an individual is known as Representative
Assessee.
 Deemed Assessee:
Deemed Assessee is an individual who is put in a position to pay taxes
for some other person by the legal authorities.
 Assessee-in-default:
An Assessee-in-default is an individual who has failed to fulfill his legal
duty of paying tax to the government. An employer is deemed to be an
Assessee in default if he fails to submit the TDS deducted by him to the
government.
 AGRICULTURAL INCOME:-
The definition of ‘agricultural income’ under section 2(1A) provides that
the following shall constitute agricultural income:
(i) any rent or revenue derived from land which is situated in India and is
used for agricultural purposes [Section 2(1A)(a)]
(ii) any income derived from such land by agricultural operation
including processing and sale of the agricultural produce as rent-in-kind
so as to render it fit for the market [Section 2(1A)(b)],
(iii) income derived from building or land used for agricultural operation,
in certain cases. [Section 2(1A)(c)]
 Apart from basic agricultural income referred above the following
income shall also be characterized as agricultural income:-
1. Rent or revenue derived from Indian land used for agricultural
purposes.
2. Any income derived from building owned and occupied by the
receiver of the rent. Such building should be on land which is being used
for agricultural purpose or should be situated on the immediate vicinity
of such land.
3. As per explanation 3 of the section 2(1A), Any income derived from
saplings or seedlings grown in a nursery shall be deemed to be
agricultural income.
 Heads of Income:
As per Income tax, section 14 classifies income under five heads:
i. Income from salaries
ii. Income from House Property
iii. Profits and gains of business and profession
iv. Capital Gains
v. Income from other sources
 What is Gross Total Income?
Gross total income (GTI) is the sum of incomes computed under the five
heads of income i.e. salary, house property, business or profession,
capital gain and other sources after applying clubbing provisions and
making adjustments of set off and carry forward of losses.
GTI = Salary Income + House Property Income + Business or Profession
Income + Capital Gains + Other Sources Income + Clubbing of Income -
Set-off of Losses
 What is Total Income? What is the difference between Gross Total
income and Total Income?
 The income arrived at after claiming all allowable deductions from
Gross Total Income is known as Total Income.
 Gross Total Income is the sum of all of the income a person receives
during a year, whereas Total income is the amount of income that is
subject to taxation, after all allowable deductions or exemptions have
been subtracted from the Gross Total Income.
 Total income =Gross Total Income –Allowable Deductions U/Sec. 80 C
to Sec. 80 U.
FORMAT OF COMPUTATION OF TOTAL INCOME:-

PARTICULARS AMOUNT AMOUNT

INCOME FROM SALARY XXX
ADD: INCOME FROM HOUSE PROPERTY XXX
ADD: INCOME FROM BUSINESS/PROFESSION XXX
ADD: INCOME FROM CAPITAL GAINS XXX
ADD: INCOME FROM OTHER SOURCES XXX
--------------- ----------------
GROSS TOTAL INCOME:- XXXX
LESS: DEDUCTIONS UNDER CHAPTER VI A
(FROM SEC. 80C TO SEC. 80U) XX
-------------- ----------------
TOTAL INCOME XXXX
THANK YOU!