INCOME TAX

FINANCE SEMINAR

Introduction

                                                        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.

Brief History of Income Tax

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.In the year 1886, a separate Income Tax Act was
passed, this act was in force for a long time, subject to the various amendments from time to time. In the
year 1918, a new Income Tax Act was passed, but again, it was replaced by another new act of 1992. The
Act of 1922 became very complicated due to various amendments. This act remains in force to the
assessment year 1961-62. In the year 1956, the Government of India referred to the Law Commission in
order to simplify the law and also to prevent the evasion of Tax.

Important Terms

1. Gross Total Income – The process of filing tax returns begins with the computation of your Gross Total
Income (GTI). GTI includes salary income; income from house property; profit and gains of business &
profession; capital gain and income from other sources. These are computed after adjusting for the
relevant exemptions under each head, such as HRA, interest paid on home loan, eligible allowances, etc.

2. Net taxable income – This is the income chargeable to income tax and is computed after deductions
that are allowed under Income Tax Act (i.e. various Section 80s). You pay tax on this amount.

3. Assessee – A ‘person’ who is liable to pay income-tax or any other sum of money under the Income
Tax Act. This could be an Individual, Hindu Undivided Family (HUF), Association of Persons (AOP), Body of
Individuals (BOI), Companies firms, Limited Liability Partnerships (LLPs), local authority, and any artificial
juridical person (AJP) not covered under any of the above categories.

4. Assessment – The process of examining the returns filed by the assessee by the Income Tax
Department.

5. Assessment Year (AY) – The period of twelve months commencing on the 1st day of April every year
and ending on March 31 and succeeds the respective Financial Year. For example, for FY 2019-20 the AY
is 2020-21. An assessee is required to file income tax returns for the respective AYs.
Levy of Income

LEVY OF INCOME-TAX

Income-tax is a tax levied on the total income of the previous year of every person.

➢An individual,

➢Hindu Undivided Family (HUF),

➢Association of Persons (AOP),

➢Body of Individuals (BOI),

➢A firm.

➢ A company

➢Artificial Juridica

Head of Income

1) Income from Salary

The first head of Income Tax heads is income from salary whichThis clause essentially assimilates any
remuneration, which is received by an individual in terms of services provided by him based on a
contract of employment. This amount qualifies to be considered for income tax only if there is an
employer-employee relationship between the payer and the payee respectively. Salary also should
include the basic wages or salary, advance salary, pension, commission, gratuity, perquisites as well as
the annual bonus.

2)Income from House Property

The second head of Income Tax heads is Income from house property, According to the Income Tax Act
1961, Sections 22 to 27 is dedicated to the provisions for the computation of the total standard income
of a person from the house property or land that he or she owns. An interesting aspect is that the charge
is derived out of the property or land and not on the amount of rent received. However, if the property is
utilized for letting out the normal course of business, then the income from the rent will be considered.

3)Income from Profits of Business

The third head of Income Tax heads isIncome from Profits of Business in which the computation of the
total income will be attributed from the income earned from the profits of business or profession. The
difference between the expenses and revenue earned will be chargeable. Here is a list of the income
chargeable under the head:

4)Income from Capital Gains

Capital Gains are the profits or gains earned by an assessee by selling or transferring a capital asset,
which was held as an investment. Any property, which is held by an assessee for business or profession,
is termed as capital gains.

5)Income from other sources

Any other form of income, which is not categorized in the above-mentioned clauses, can be sorted in
this category. Interest income from bank deposits, lottery awards, card games, gambling or other sports
awards are included in this category. These incomes are attributed in Section 56(2) of the Income Tax Act
and are chargeable for income tax

SOME USEFUL TIPS

In case of income from the salary the tax is assessed by the employer and tax is deducted from
monthly salary which is called TDS Tax deducted at source.

If any individual is having income other than from the salary, the tax on such income to be assessed by
the individual himself which is called self-assessment.

In such cases if the total tax payable is more than 10,000 the individual is required to pay advance tax as
per the rules of the provision.