CHAPTER B18 Introduction [Sections I to 4] SECTIONWISE STUDY aoroe Farias Discussed under Para_| Page i ; 3 1 Naive of the Act and date oft commencement uy 3 2 Definitions (Discussed in various Chapters) 20) Assessee Te. 7 29) “Assessment year 13b a 2(24) Income, 1,3-i(A) 18 261) | Person 13a 5 3 "Previous Year” defined 13¢ 7 4 ‘Charge of Income-tax 13h 7 874, Rebate of tax 13e(2) 3 Other Sections discussed under this 172 Assessment of Income of a Non-Resident from shipping business 13¢ 8 174 ‘Assessment of persons leaving India 13¢ 8 174A | Assessment of association of persons or body of individuals or artificial juridical [1.3 8 person formed fora particular event or purpose 175; ‘Assessment of person trying to alienate his assets with a view to avoid tax Te 176 “Assessment of discontinued business 13e 8 288A | Rounding off of Total Income 13 21 295 Power of CBDT to make Rules = 1.18) 4 L.1 Income Tax Law ‘An understanding of the Income-tax law requires a study ofthe following: a) @) © @) @ ‘The Income-tax Act, 1961 (amended up-to-date) ‘The Income-tax Rules, 1962 (amended up-to-date) Notifications, Circulars and clarifications issued from time to time by the CBDT Judicial decisions ‘The Income-tax Act, 1961 (Amended upto date): The provisions of income-tax are contained in the Income-tax ‘Act, 1961 which extends to the whole of India and became effective from 1.4.1962 (Section 1). ‘Scope of Income-tax Act. The Income-tax Act contains provisions for determination of taxable income, determination of tax liability, procedure for assessment, appeals, penalties and prosecutions. It also lays down the powers and duties of various Income-tax authorities. Since the Income-tax Act, 1961 is a revenue law, there are bound to be amendments from time to time in this law. ‘Therefore, the Income-tax Act has undergone innumerable changes from the time it was originally enacted. Thess amendments are generally brought in annually alongwith the Union Budget. Besides these amendments, whenever it is found necessary, the Government introduces amendments in the form of various Amendment Acts and Ordinances. Scanned with CamScannerSystematic Approach to Income Tax Chap. 1 Annual amendments: Every year 4 Budget is presented before the Parliament by the Finance Minister. One of the ‘most important components of the Budget is the Finance Bill, which declares the financial proposals ofthe Central Government forthe next financial year. The Bill contains various amendments which are sought to be made in the areas of direct and indirect taxes levied by the Central Government. The Finance Bill also mentions the rates of income-tax and other taxes which are given in the First Schedule attached to such Finance Bill. The First Schedule gives the rates of income-tax in 3 pars Part: It gives the normal rates of income-tax for various assessees for the current assessment year, e.g. the Finance Act, 2021 had given the rates of income-tax for the assessment year 2021-22 and the Finance ‘Act, 2022 has given the rates of income-tax forthe assessment year 2022-23. Part-ll: It gives the rates for deduction of tax at source (TDS) from the income earned in the current financial year, eg. the Finance Act, 2022 has given the rates at which tax is to be deducted at source in the financial year 2022-23, Similarly, the Finance Act, 2023 shall give the rates of TDS on the income ‘eared during the financial year 2023-24 Note—Certain rates of TDS are given in the Income-tax Act itself. Part-II: It gives the normal rates for calculating income-tax for deducting tax from income chargeable under the hhead ‘Salaries, The same rates are applicable for computation of advance tax to be paid in the current financial year for incomes taxable at normal rates, eg., Finance Act, 2021 had given the rates for the computation of advance tax for the financial year 2021-22 (ie., assessment year 2022-23) and the Finance Act, 2022 has given the rates of advance tax for financial year 2022-23 (ic. assessment year 2023-24). 1. When the Finance Bill is approved by both the Houses of Parliament and receives the assent ofthe President, it becomes the Finance Act. The provisions of such Finance Act are thereafter incorporated in the Income-tax Act. 2. Partll of Schedule {of a particular Finance Act, which gives the rates for computation of Advance Tax and ‘TDS on salary, etc, generally becomes Part-| of the subsequent Finance Act, ¢.g., Finance Act, 2021, Part-II, had given the rates for computation of advance tax for the financial year 2021-22 (ie., assessment year 2022. 23). The same rates have become the rates of income-tax forthe assessment year 2022-23 in the Finance Act, 2022, Similarly, rates given under Part III of Schedule I of the Finance Act, 2022 will become Part I of Schedule I of the Finance Act, 2023 and these will be the rates of income-tax for assessment year 2023-24 3. The total income of the assessee is taxable at the following two rates: (Q) Normal rates, which are given in section 2 of Chapter II read with First Schedule of the Finance Act, every year. 2) Special rates, which are given in the Income-tax Act itself, ¢.g., long-term capital gain is taxable @ 10%/20%, short-term capital gain referred to in section 111A is taxable @ 15% and income from lotteries, crossword puzzles. and income from transfer of virtual digital assets, etc, is taxable @ 30% for assessment year 2023-24. (B) Income-tax Rules, 1962 (amended upto date): Every Act normally gives power to an authority, responsible for implementation of the Act, to make rules for carrying out purposes of the Act. Section 295 of the Income-tax Act has given power to the Central Board of Direct Taxes (CBDT) to make such rules, subject to the control of Central Government. These rules are made applicable by notification in the Gazette of India Examples: (1) The value of rent free accommodation provided by the employer to an employee is included in the gx0ss salary of employee. How to value such rent free accommodation is given in rule 3 of the Income-tax Rules, 1962. (2) Section 10(13A) provides that house rent allowance is exempt upto a certain limit. How to calculate such limit is «given in rule 2A of the Income Tax Rules, 1962. (© Notifications, Circulars and Clarifications by CBDT: Notifications are issued either by the Central Government or CBDT in the Official Gazette, whereas Circulars and clarifications are issued by CBDT. Notification is a subordinate legislation and is issued under powers delegated by the Parliament. Notifications ‘generally lay down the law taking care of some procedural aspects of the enactment. Further, to carry out purposes of the Income Tax Act, in certain sections, the power has been given to CBDT to ‘make rules, by way of notifications in the Official Gazette of India. See para (B) above. Notifications issued by the Central Government as well as CBDT are binding on everyone. A circular or clarification is a communication issued by the CBDT which is primarily meant to serve as guidelines 10 implement the provisions of law. Such circulars or clarifications are binding upon the Income-tax Authorities, but the same are not binding on the assessee. However, the assessee can claim benefit under such circulars. Scanned with CamScannerChap. 1 $ The CBDT has Introduction {poled by hen a en ccs and clarfcatons fom ine 1 ine, wish av ob followed and Recently, the preyn Authorities. way of erculee lites are being issued by the CBDT with the previous approval ofthe Cental Government by Temove difficulties inthe implementation of the provisions of certain sections. These guidelines befor wellas on the ances {82 House of Parliament, These circulars are binding both onthe incometax authorities as (D) Judicial decisions: S decision. nap Decision given by judicial authorities on an appeal filed before them is known as judicial Appellate Trivusei ion given by the Supreme Court becomes 2 law which will be binding on all the Courts, elt Income-tax Authors aswell as nll the asses 8 High Cour, Incomes i binding on all the assessees as well as the In . Income late Tribunal etc, are binding s eome-ex Authorities which fll under heir jraicton, unless overruled by a higher autor, The decision of High Court is i Court has jutadicten (on the Tribunal and the Income-tax Authorities situated in the area over which the High 1.2 Scheme of Taxation Every person, whose otal in. tax, is an assessee and char Act/Income-tax Act for that residential status in India. Decisions given b icome of the previous year exceeds the maximum amount which is not chargeable to income- irgeable to income-tax in the assessment year at the rate or rates prescribed in the Finance Televant assessment year. However, his total income shall be determined on the basis of his |n other words, income-tax is levied in India in the following manner: 1. Income eamed by every person is chargeable to income-tax provided it exceeds the maximum amount which is not chargeable to tax, ie, it exceeds the maximum exemption limit. 2. Its charged on the total income of the previous year but is taxable in the following assessment year at the rates applicable to such assessment year. However, there are certain exceptions to this rule. 3. Income-tax is charged at two rates, viz. normal rates and special rates. Normal tax rates which can be in the form of slab rate or flat rate are fixed by the annual Finance Act but special rates are given in the Income-tax Act itself. 4, Tax is charged on the foral income computed in aecordance with the provisions the Act. Total income of a person is determined on the basis of his residential staus in india. 6. Although the income of the previous year is chargeable to tax in the assessment year, but the assessee has to pay jncome-tax in the same previous year in which income is earned. It is paid inthe form of advance tax and deduction of tax at source (TDS). Such tax paid in the previous year (also known as prepaid taxes) shall be deducted from the income-tax due on total income in the assessment year. Further, an analysis of the above statement would reveal the fllowing important concepts, which are necessary for understanding the framework of the Income-tax Act. 1 Person: 2, Assessee: 3. Assessment year, 4. Previous year; 5, Rate or rates of tax; 6. Charge of income-tax; 7 Maxum amount which is not chargeable to income-tax; 8, Total income; 9, Residential status in India, Scanned with CamScanner6 1 ‘Systematic Approach to Income Tax .3 Important Concepts 1.3a Person [Section 2(31)}: ‘An association of persons or a body of individuals ora local authority or an artificial juridical person shall be deemed to bbe a person, whether or not, such person or body or authority or juridical person, was formed or established or incorporated with the object of deriving income, profits or gains. [Explanation o section 2(31)] (@) An individual means a natural person, i, a human being. It includes a male, female, minor child. However, the income ofa minor is now generally included in the income of a parent. Sometimes the minor is himself liable to tax ‘on income eared by him. Since minor is not competent to contract, his income shall be taxable through his legal ‘guardian. (®) A Hindu undivided family bas not been defined under the tax laws. However, as per the Hindu law, it means a family ‘which consists of all persons lineally descended from a common ancestor including their wives and daughters. (© A firm shall have the meaning assigned to it in the Indian Partnership Act, 1932 and shall include a limited liability Partnership as defined in the Limited Liability Partnership Act, 2008. (@ Association of persons: The Income-tax Act does not define an association of persons (AOP). In the absence of any definition, the words must be construed in their plain ordinary meaning. Association of persons means two or more persons who join for a common purpose with a view to earn an income. It need not be on the basis of a contract. Therefore, if two or more persons join hands to carry on a business but do not constitute a partnership, they may be assessed as an Association of Persons (AOP). ‘An Association of Persons does not mean any and every combination of persons. It is only when they associate themselves in an income-producing activity that they become an association of persons. They must combine to engage in such an activity, the engagement must be pursuant to the combined will ofthe persons constituting the association; there must be a meeting of the minds, s0 to speak. In a nutshell, there must be a common design to produce income. (©) Body of individuals (BOI) means a conglomeration of individuals who carry on some activity with the objective of ‘eaming some income. It would consist only of individuals. Entities like companies or firms cannot be members of a body of individuals. ‘Normally, income-tax shall not be payable by an assessee in respect of the receipt of share of income by him from BOVAOP if the tax has already been paid by such BOVAOP. Distinetion between AOP and BOT 1. An AOP may consist of non-individuals but a BOI has to consist of individuals only. If two or more persons (like firm, company, HUF, individual, et.) join together, it is called an AOP. But if only individuals join Scanned with CamScannerChap. 1 Introduction 7 Particular ventas caled 8 BOIL For example, where X, ABC Lt, and PO & Co. (A frm) join together for a but donot cons Ane? AY be refered to a8 an AOP. FX, ¥ and Z join togeter for 8 particular venture, 2. An AOP implies a sehen net thy may be referred to as a body of individuals. Producing welts @ voluntary geting togeter for «common design or combined wil engage in an income ies, whereas a BOI may or may not have such common design or will. Tn ease of A income ars 2S Wel BOT, the provisions relating to computation of tal income and ‘axabilty of such together then it O A local authority: The (Panchayat; or “ Municipality; or ii) ‘expression local authority means: Manic or mangement amd District Board, legally entitled to, or entrusted by the Government with, the control (i) Commandment of Manipal ot al ind Artificial juridical pers. ‘i 2 cigs ‘hey el Bersons are entities which are not natural persons but are separate entities in the eyes of law. God, idols and deiti Sued directly ina court of law but they can be sued through persons managing them. the pects atd dts are artificial persons. Though they may nat be sued desl We be legally ued through and donations, granaing commitie ofthe place of worship, ce, They pessons and thes income, ke offerings at Gonations, are taxable. However, under the Income-tox Act they ave ect provided exemption from payment Secret, tute von ft Ai ean conons iene here ar ml rin do ot all other artificial persons, with a juristic personality, will also fal s category, i iin any ofthe proceting categories eden e. Univeaiy of Delhi ian artificial personas it doesnot fll in six categories mentioned above Ilustration 1.1: Determine the status ofthe following an et Univesity (Essen Pans Pvt. Li i) ana Bak i.) A and BO of CC died in 2021 and A and B cary on his buns without entring nto a parm (0) Sh estas Es ‘fim consisting of three partners S, K (0) A joint family consisting of P, Mrs. P and their son S. (vi) Municipal Corporation of Delhi. Solution (i) Artificial Juridical Person (i) A Company (ii) A Company (iv) A Body of Individuals (v) A Firm (vi) A Hindu Undivided Family (vi) A Local Authority. 1.3b Assessment year [Section 2(9)] "Ascessment year means the period of 12 months commencing on the frst day of April every year It is, therefore, the period from Ist of Apr to 31s of March for example the assessment year 2023-28 will commence on 14.2023 and wit end aie 4 The tae is levied, in each assessment year, wih respect to or onthe total income eared by the assess inthe previous year. 1.3e Previous year [Sections 3] rcaading to section 3, previous year means the financial year immediately preceding the assessment yer, Financial year means a year which starts on Ist April and ends on 31st March, rears reian is payable on the income eamed during the previous year and itis assessed in the immediately Income fancal yar which sclledanasesment ear. Therefore, the income cared uring the previous year se 31 3.2023 wil be assessed or charged to tx inthe atesment year 2023-24, “ke Altazoasec are required follow a uniform previous year, the facial year (Ist Api to 31st Mach a the All ase revous yea, fo Income Tax purposs, wil be Gran year whch ends on 36 ‘of March although previous Year Prove hs books of account on any ter Gate, an seice may mani books of acount 08 Ihe ase pus previous yar, for Income Tax purpose willbe financial year and not he calendar Yat a ot, previous yea aswel assent erste previous yer fe fame eared ting ach nana Yat rent ya fore cone cared ring he precesing revons yar, fan Ya tha Sian yeat yer forthe income came ring hat Grail year 2022-23 and sessment yer for the income ‘eamed during the previous yeat 2021-22. . First previous year for @ ‘business/profession newly set-up during the financial year or for a new source of income: In case— ness or profession is mew) set¥P, OF Pa co voter of income comes into existence during the financial year, ro he date of setting up ofthe busines or from the date the new source came int existence, the pods beinning jy of at financial year, fe. 31st of Mach shal be he is previous year fr tet business a or source of income, Scanned with CamScanner8 Systematic Approach to Income Tax ‘Chap. For example if new bins is et up on 21102022 thn the ft previo your fo that busines wil be the jod starting from 21.10.2022 to 31.3.2023. Therefore, the us year ly set-up ErsinesePprfesion of «new Source of income wl be either 12 months or less than 12 months. lt can never exoo 4 petiod of 12 months. Illustration 1.2: Ascertain the previous year of the income in relation to assessment year 2023-24 in the following cases: (0 Dr. Gupta was appointed as Assistant Professor in Shri Ram College of Commerce forthe first time on 1.8.2022, i) Dinesh started a cloth business on 27.2.2023. (Gil) Jai Kumar purchased a tet out house property of two rooms oa 5.7.2022 (i) A reczived a remuneration of 850,000 for acting in a T.V. Serial on 103.2023 for the first time Solution @ 1.8.2022 wo 31.3.2023 (272.2023 10 313.2023 (iit)_ 5.72022 10 3132023 (103.2023 10 31.32023 ‘Where an assessce has an exisfing regular income from various sources and he eams an income from a new source during the financial year, hs previous year, for the existing income, will be that relevant financial year and the previous year forthe new Source of iatome will start from the date from which the new source of income came into existence and would end on 31st March next following. Since he is assessable on the aggregate ofthe income from all the sources, therefore, all the income will be included in the previous year. For example, X has been regularly camming income from salary and house property. On 21.10.2022 he commences a business of trading in paper. The previous year for income from salary and house property will be the financial year 2022-23 and previous year forthe new business willbe 110.2022 to 31.3.2023, However, for computation of ‘income of the previous year 2022-23, we shall take the aggregate of income from salary and house property of financial year 2022-23 (Je, 1.4.2022 to 31.3.2023) and income eared from 21.10.2022 to 31.3.2023 forthe business. Cases where income of previous year is assessed in the same year: As a normal rule, the income eamed during any previous year is assessed or charged to tax in the immediately succeeding assessment year. However, in the following Circumstances the income is taxed in the same year in which it is earned. Therefore, the assessment year and the previous year in these exceptional circumstances will be the same. These exceptions have been provided to safeguard the collection of taxes so that assesses, who may not be traceable later on, are not allowed to escape the payment of the taxes. The exceptions are as follows: 1. Shipping business of non-residents |Section 172|: A non-resident who is carrying on a shipping business and earns income from carying passengers/livestock/goods from a port in India, will be charged income-tax before the ship is Allowed to leave the Indian port. Therefore, before the ship leaves the Indian port, the master ofthe ship is under an obligation to furnish a retum of the full amount camed on account of fare and freight (including the amount paid or payable by way of demurrage charge or handling charge or any other amount of similar nature) and pay the tax accordingly. In this case 7.5% of the amount of fare/feightcharge, etc., shall be deemed to be income of such assessee on which the income-tax will be charged. Therefore, in this case the tax is chargeable on the income in the ‘same year in which itis earned. Where the Assessing Officer is satisfied that itis not possible for the master of ship to furnish the return before the departure ofthe ship from the port and the master of the ship has made satisfactory arrangement for the fling of the retum and payment of the tax by any other person on his behalf, he (the Assessing Officer) may, if the retum is filed within 30 days of the departure of the ship, deem the filing of the retum by the person so authorised by the master as sufficient compliance for the purpose of this section. 2. Assessment of persons leaving India [Section 174: When it appears to the Assessing Officer that any individual may leave India during the current assessment year or shorly after its expiry, and such individual has no present intention of returning to India, the total income of such individual, from the expiry of previous year for that assessment year (i, from Ist April of the assessment year) up to the probable date of his departure from India shall be chargeable to tax inthe same assessment year Example—R wishes to migrate to USA permanently and plans to leave India on 15.11.2022. He submitted his ‘etum for assessment year 2022-23 on 31.7.2022 the assessment of which i still pending In this case the Assessing Officer will make two assessments; (@) regular assessment for previous year income of 2021-22 atthe rates applicable for assessment year 2022-23. (©) assessment of income of the period 1.4.2022 to 15.11.2022 (either actual or estimated basis) and tax should be levied on such income in the assessment year 2022-23 itself but atthe rates of advance tax for financial year 2022-23 (A.Y. 2023-24) given in part Il of First Schedule of Finance Act, 2022. 4. Assessment of association of persons or body of individuals or artificial juridical person formed for a particular vent or purpose (Section 174A]: Where it appears to the Assessing Officer that any association of persons of 2 body of individuals or an artificial juridical person formed or established or incorporated for a particular event or Purpose is likely to be dissolved in the assessment year in which such association of persons or body of individuals Scanned with CamScanner9 Chap. i Introduction the oat moet i assessment Year, the t ical person was formed or established or incorporated or immediately afer cot et” Mgt income of such person of body or atheal ers, forthe period from the expiry of the previous Yee ‘for Eg. if AOP mee 1p to the date ofits dissolution, shall be chargeable to tax in that asessmene A ; fod 14.2023 ne inthe previ be dissolved on 16.6.2023 then the income o the in the previous year 2022-23 i going tobe disso h ; ass cee 2023 to 166.2023 hl be charged to income-iak i tihe assessment year 2023-24 itself although is Year should have been assessment year 2024-25. 4. Assessment of iment of persons likely to transfer property to avoid tax \Section 175): If it appeats to the Assessing Officer i, transfer, dispose of or otherwise part then the total income of such person Ist April of that assessment able to tax in the same III of Schedule 1 for the pe Fay pio ffom the expiry ofthe previous year for that assessment year (7, ort arrecsment cette When the assessing officer commences proceedings, shall be charge: Aacessment year. However, in this case also the rte of tax applicable sll be the rate Biven 2 Part « hBhat slab fr advance tw abo + Gacce te nes [Set sion is discontinued in any assessment year, the USecion 176: Where any busines ot Pols ear p ote dae of such discontnuanes income of the period from expit iy ofthe previous year fort assessment Yea : tay atthe discretion ofthe sestingofpcor be charged tox in that assessment yea. For example, 72 age $9029 may be assessed inthe assessment discontinued on 16.7.2022 2022 then the income forthe period 1.4.2022 to 16. yea 2022-23 isl. The ax wil be charged a the rates in free for advan financial year 2022- 2 [ersten Pl of the Firs See ' person discontinuing any business or profession shall give to Assessi fay parce Aloctiiotag ay profession shall give 10 Assessing TWmay be noted that in the first four ; fr 7 charge the tax on such persons in cxceptions given above, the Assessing Officer shall charge the tax on such the same previous year, es mandatory forthe Assessing Oe f0 care the tax the sme previous Year, On he other hand, in the fith exception given above the Assessing, Officer has the discretionary power and as such he may charge in the same previous year or may wait il the assessment year. 1.34 Maximum amount which is not chargeable to income-tax In case of cenain assesses, there is no income-tax on income earned during the previous year upto a certain limit. The limit for assessment year 2023-24 for diferent assessees is as under: (i (@) Incase of every individual (male or female), being resident in India, 80 years or more at anytime durin the previous year ce tax payable during Officer notice of such discontinuance who is of the age of &5,00,000 (b)_ Incase of individual (male or female) being resident in India who is ofthe age of 60 years %3,00,000 ‘and above but less than 80 years at any time during the previous year (©). Any other individual, ie, resident in India who is less than 60 years of age of an individual %2,50,000 rho isa non-resident irrespective of whether his age is less than or more than 60 years (a) An individual, irrespective of any age, who has opted to be taxed section 11SBAC 22,50,000 (i (a) Hindu Undivided Family 22,50,000 (b) Hindu Undivided Family who has opted tobe taxed section 11SBAC 22,50,000 ity, AOP/BOI other than co-operative society (Where no member has income exceeding maximum 2,50,000 exemption limit) (i) Artificial juridical person 22,50,000 Nil (Firm, Company, Local Authority and Co-operative Society Zase of an Individual (whether male or female) who is of the age of 60 years and above but who is The exemption limit in aan eas vat in India is 22,50,000 inscad of €3,00,000 oF $5,00,000 as the case may be. L.3e Rates of income-tax for assessment year 2023-24: (1). In case of individuals an individual (man or woman), resident in India who is of the age of 80 years or more at any time (A) For during the previous year: Upto €5,00,000 = *%,00,010 to €10,00,000 7 wve €10,00,000 i ie 30% Scanned with CamScanner10 ‘Sstematic Approach to Income Tax Chap.1 (B) For an individual (man or woman), resident in India who is of the age of 60 years or more but less than 80 ‘years at any time during the previous year. Upto &3,00,000 Nil 83,00,010 to &5,00,000 5% 85,00,010 to €10,00,000 20% [Above &10,00,000 30% ividual, [other than mentioned in (A) & (B) above] HUF, AOP/BOI (other than a co-operative id artificial juridical person. Upto %2,50,000 Nil 2,50,010 to 25,00,000 5% 35,00,010 to 210,00,000 20% [Above %10,00,000 30% Where the individual or HUF opts to be taxed under section 115BAC (ie., the new regime), the rates of income-tax shall be as under provided the conditions mentioned in section 11SBAC are satisfied: Rate of tax [Upto %2,50,000 Nil From 82,50,001 to 25,00,000 5% From %5,00,001 to 27,50,000 10% From %7,50,001 to 10,00,000 15% From 210,00,001 to 212,50,000 20% [From %12,50,001 to &15,00,000 25% [Above %15,00,000 30% Notes: 1. Ifthe individual opts to be taxed under section 115BAC (i.e, the new regime) the exemption limit in case of all individuals (whether of the age of less than 60 years, or 60 years or more ot 80 years or more) shall be %2,50,000. 2, As per section 11SBAC(2), individual or HUF who opts to be taxed under section 11SBAC, — certain allowances and deductions are not allowed to a salaried employee — deduction of interest is not allowed under the head “income from house property" — certain deductions are not allowed while computing the business income — deductions under section 80C to 80U (i., Chapter VI-A) are not allowed For details see Chapter 13. ‘Surcharge For assessment year 2023-24 ‘The amount of income-tax shall be increased by a surcharge forthe purposes ofthe Union calculated atthe following rates— (a) where the total income (including the income by way of dividend or the income | 10% of such under the provisions of sections 111A, 112 and 112A of the Income-tax Act) exceeds | income-tax. %50,00,000 but does not exceed &1 crore, (b) where the total income (including the income by way of dividend or the income | 15% of such under the provisions of sections 111A, 112 and 112A of the Income-tax Act) exceeds | income-tax. 21 crore, but does not exceed 22 crore, (©) where the total income (excluding the income by way of dividend or the income | 25% of such under the provisions of sections 111A, 112 and 112A of the Income-tax Act) exceeds | income-tax. 22 crore but does not exceed &5 crore, (@) where the total income (excluding the income by way of dividend or the income | 37% of such under the provisions of sections 111A, 112 and 112A of the Income-tax Act) excceds | income-tax. Scanned with CamScannereer Imroduction ero, euch (©) where the total income (includi f dividend or the income | 15% 0 income (including the income by way ol | lunder the provisions of sections 111A, 112 and 112A) exceeds €2 erore, but is not | income Sovered under clauses (c) and (d) above Provided that incase wh by way of dh in case where the total income includes any income by Way tinder sections 111A, 112 and 112A of the Income-tax Act, the rate of surcharge on ‘computed in respect of that Part of income shall not exceed 15% Marae "elif: Marginal relies has also been provided in all cases where surcharge isto be levied. ase of persons mentioned in (A) above, where such income exceeds.— (2) 350,00,000 but docs not exceed 21 crore, the total amount payable on such income and Se not exceed the total amount payable on a total income of £50,00,000 by more than the that exceeds 850,00,000; ree (©) & crore but does not exceed £2 crore, the total amount payable on such income and surcharge thereon SOA Hoe {3sced the otal amount pays on antl ncme of evo by mare than the amount crore i shall not (©) Weerore but does not exceed 85 crore, the total amount payable on such income and surcharge herson exceed the total amount payable au fla income of €2 crore by more than the amount of Income that ewe heal seed the total amount (d)_%5 crore, the total amor le income and surcharge thereon shall not exc tot pater aca omas once eres re Health and ec ition cess: For assessment year 2023-24: "Health and Education Cess (H&EC) on Income Tax’ @ ra ee ete on etetens Th ne se sme yr 2224 89040 Cone x ple Rr be sean Per tebemriteeiiarit rc remirint ividend or income chargeable ‘the amount of Income-tax Sn He [Particulars ee ra zl Tax on 250,90,000 7 raat 7 reso Ta fart 30 = as ae saa aa a ga ean ae Fk a I ar ig OTT io a Total tax including surcharge payable under marginal relief, Taoas00 Fgemergeatami ape oat aoa, PS fama msi Fes a [Note—The total income and the tax payable is rounded off fo the nearest multiple of ea 7 paras 1.3) and 1.3, later in this Chapter. tiple of ten rupees. For details see Scanned with CamScanner2 ‘Systematic Approach to Income Tax Chap. 1 MMustration Marginal relief The total income of R for the assessment year 2023-24 is €1,01,00,000. Compute the tax payable by R for the assessment year 2023-24. Assume he does not opt for section IISBAC (ie., new regime) Solution Particulars zg Tax on €1.01,00,000 (On first €2,50,000 Nil ‘Next &2,50,000 — 5% 12,500 Next 85,00,000 — 20% 1,00,000) Balance %91,00,000 — 30% 27,30,000) 28,42,500 ‘Add: Surcharge 15% 426375) 32,68,875 Marginal relief Tincome-tax on 21,00,00,000 28,12,500 Ada: Surcharge @ 10% assuming income is %1,00,00,000 281,250) Tax and surcharge as per marginal relief, 100% of income exceeding &1,00,00,000 (1,01,00,000 — 100,000 1,00,00,000) = Total tax including surcharge payable under marginal relief, 31,93,750 Tax payable as per normal provisions or as per provisions of marginal relief whichever is less (i.e, 31,93,750 32,68,875 or 231,93,750 whichever is less) Add: H&EC @ 4% 127,750 Total tax payable 33,21,500| ‘Note.—The total income and the tax payable is rounded off to the nearest multiple of ten rupees. For details see paras 1.3] and 1.31, later in this Chapter. Mlustration 1.5 ‘What shall be your answer ifthe total income is €1,02,00,000 instead of €1,01,00,000. Solution [Particulars z Tax on €1,02,00,000 [On first ®2,50,000 Nil Next &2,50,000 — 5% 12,500 [Next 500,000 — 209% 1,00,000| Balance €92,00,000 — 30% 27,60,000 28,72,500) (Add: Surcharge 15% 430.875 33,038,375 Marginal relief Tncome-tax on €1,00,00,000 28,12,500) (Add: Surcharge @ 10% assuming income is €1,00,00,000 2,81,250) ‘Tax and surcharge as per marginal relief, 100% of income exceeding &1,00,00,000 (1,02,00,000 - 200,000 1,00,00,000) : Tota tax including surcharge payable under marginal relief, 32,93,750) Tax payable as per normal provisions or as per provisions of marginal relief whichever is less (Le. 32,93,750 '33,03,375 or €32,93,750 whichever is less) Scanned with CamScannerSEAS Be Chap. 1 Introduction 8 aaa Introduct Total = 131,750 tax payable Noe —the 3425,500 PATRS 13) and 13] hermit the (ax payables rounded of fo the nearest multiple of fn rupecs. For deals see Mustration 4g 7" "this Chapter. What willbe jou Solution 2 42S¥Er if the total income is &1,0250,000? Particulars z Tax on €1,02.50,000 On first €2,50,000 Nil Next 2,50,000 — 12,500 Next €5,00,000 — 20% 1,00,000] Balance £92,50,000 — sone 27.75,000] 28,87,500 Add: Surcharge 15% 433,125 33,20,625 Marginal rele Jnconme-tax on 81,00,00,000 28,12,500) Add: Surcharge @ 10% assuming income is €1,00,00,000 2,81,250 Tax and surcharge as per marginal elif, 100% of income ex (000 €1,02,50,000 = 250,000 Tosa guhare sper marginal rel, 100% ofineome exceeding 1,00 0000 (102.50 Total tax including surcharge payable under marginal relief, 33,43,750] Tax payable as per normal provisions or as per provisions of marginal relief whichever is less (ie. 33.20.65 33,20,625 or 833.43,750 whichever is less) Add: H&EC @ 4% 132,825) Total tax payable 34,53,450] @ [Note.—The total income and the tax payable ls rounded off to the nearest multiple of ten rupees. For detalls se paras 1.3] and 1.3, later in this Chapter. Rebate of maximum 212,500 for resident individuals having total income up to 25,00,000 [Section 87A] With a view to provide tax relief to the individual tax payers who are in lower income bracket, the Act has provided rebate from the tax payable by an assesee, ifthe following condition and satisfied: (1). The assessee is an individual Q) He is resident in India, {G) His total income does not exceed 25,00,000. Quantum of rebate: The rebate shall be equal to: (1) the amount of income-tax payable on the total income for any assessment year or @) 212,500, whichever is less. Note. Students should read para 1e(2) and illustrations No, 1.7 and 1.8 (given below) only after reading all the provisions income en a hs ook a gross total of R for the assessment year 2023-24 is 8470,000 which includes long-term capital gai ean sepia gain efeed to in section 115A 230,000 and intrest on saving bank pen 2.000 Come ‘ble by R assuming he deposited 21,00,000 in PPF and paid premium for health insurance by cheque the tax. payati 5000, Assume R does not opto be taxed under section 11SBAC. * amounting to 21: Solution Particulars ® z Gross total income 4,70,000| Less: Deductions Scanned with CamScanner4 8 @ ‘Systematic Approach to Income Tax Chap. 1 Ui 80C ce Uis 80D 15,000 Uis SOTA Laooo 125,000) Total income 345,000 Tax on €3.45,000 ses Long-term capital gain €50,000 @ 20% a 40,000] Shor-erm capital gain €30,000 @ 15% | 4500 [Balance total income €2,65,000 Hee 750 | [15250 Less: Rebate ws 7A |__t 12,500 _ 2,750 |Add: Health & education cess (H&EC) @ 4% | Hg) Total tax payable 2,860) In case of a firm (including limited liability partnership) Rate of tax 30% Surcharge: The amount of income-tax shall be increased by a surcharge at the rate of 12% of such income-tax in case of a firm having a total income exceeding €1 crore. Marginal relief: The total amount payable as income-tax and surcharge on total income exceeding €1 crore shall not exceed the total amount payable as income-tax on a total income of 21 crore by more than the amount of income that exceeds 1 crore, Health and education cess: For assessment year 2023-24: Health and Education Cess (H&EC) on Income Tax’ @ 4% on income-tax (inclusive of surcharge, wherever applicable) shall be levied. (0 In the case of a domestic company Rate of tax (a) Where its total turnover or the gross receipt in the previous year 2020-2021 does not ‘exceed 2400 crore rupees 25% (b) Any other company 30% ‘Surcharge: Where the total income of a domestic company exceeds 21 crore but does not 210 crore, a surcharge of 7% of tax shall be levied. Where the total income of the domestic company exceeds £10 crore, a surcharge at the rate of 12% of tax shall be levied. Marginal relief: However, the total amount payable as income-tax and surcharge on total income exceeding @1 crore but not exceeding 10 crore, shall not exceed the total amount payable as income-tax on a total income of 21 crore, by more than the amount of income that exceeds &1 crore, Further, the total amount payable as income-tax and surcharge on total income exceeding 210 crore, shall not exceed the total amount payable as income-tax and surcharge on a total income of 810 crore, by more than the amount of income that exceeds €10 crore. Health and education cess: For assessment year 2023-24: ‘Health and Education Cess (H&EC) on Income Tax’ @ 4% on income-tax (inclusive of surcharge, wherever applicable) shall be levied. (i) For foreign company: 40%, ‘Surcharge: Where the total income of a company other than a domestic company exceeds 21 crore but does not 210 crore, a surcharge of 2% of tax shall be levied. ‘Where the total income of such company exceeds 210 crore, a surcharge at the rate of 5% of tax shall be levied. Marginal relief: However, the total amount payable as income-tax and surcharge on total income exceeding 21 crore but not exceeding £10 crore, shall not exceed the total amount payable as income-tax on a total income of €1 crore, by more than the amount of income that exceeds 21 crore. Further, the total amount payable as income-tax and surcharge on total income exceeding 210 crore, shall not exceed the total amount payable as income-tax and surcharge on a total income of 210 crore, by more than the amount of income that exceeds 10 crore. Health and education cess: For assessment year 2023-24: ‘Health and Education Cess (H&EC) on Income Tax’ @ 4% on income-tax (inclusive of surcharge, wherever applicats) shall be levied. Scanned with CamScannerChap. 1 15 1.3 Rate or Rates of Tax, Income-tax is charg cable atthe 2022: rate or ates prescribed inthe Finance Act, ©: yea 7022-23 is more than %2,50,000 but does not exceed £5,00,000, only one rte Introduction {the total income of X for the previous ‘of tax, 1c., 5% shall be charged on the income exceeding 250,000. Ifthe otal income is €-40,000, vo rales of tx mentioned below shal be heresab |On Income of %2,50,010 to 35,00,000 = (On Income of &5,00,010 to %5,40,000 7 On the other band if the total income is €11,0,000, hee rates of ax mentioned below shal be charBeable On Income of %2,50,010 to 25,00,000 2 |On Income of %5,00,010 to 210,00,000 ea | Above 710,00,000 ms seo - 7 firms, local authorities, etc.. welavea emf atm otis roe ae espn oe ml neme of Be Ae ME OF if it I aoe ‘itrespective of the total income of the firm. ble at ertain incomes like long-term capital gal fe ‘of total income, are taxable é ins, Fioteries, ei, although form part o special rats prescribed inthe Income ix Ack Questions relating to computation of ax in such case Wil be done Mlestraion 8: Taal income at er 3 200 is €4:94900, Compute the x income oR whois ged 46 yer, forthe previous ya nig tse rhe nent jo Bed 46 year fo eed unde section 11SBAC. on tas oc ‘of previous year is forthe rele, .. For previous year 2022-23, deacon a ge Yc ter eed cae asunder racer eetee | pemel | Next %2,44,900, 5% 12,245 la aces wenn cept eS pa9N01SH) Less: Rebate w/s 87A (100% of tax or £12,500 whichever is less) 12,245 Tax payable Ilustration 1.9: Total income of Mrs. R aged 60 years, a resident of India, forthe previous year 2022-23 is %9,46,300. (A) Compute her tax liability for the assessment year 2023-24. (B)_ What will be tax payable if Mrs. Ris non-resident in India. ‘Assume Mrs. R does not opt tobe taxed under section 11 SBAC. Solution (A). Since, Mrs. Ris 60 years old, and resident in India, her tax liability wll be computed as under: Particulars Rate of tax Total tax First 63,00,000 Nil i [Next &2,00,000 5% 10,000.00) (on income exceeding £3,00,000 but upto 85,00,000) Next €4,46,300 20% 89,260.00 (on income exceeding &5,00,000 but upto €10,00,000) 99,260.00] ess: Rebate ws 87A (Nil as the total income exceeds &5,00,000) Ral 99,260.00] [Ada Health and education cess @ 4% 3,970.40 1,03,230-40) Total tax (rounded off) 7,03,230.00 [Note —Tax payable i rounded off fo nearest rupees ten. Since the lst digit of tax payable is €5 or more, tis rounded off to higher ten Scanned with CamScannerMa sstematic Approach to Income Tax Chap. 1 (8) IfMrs. Risa non-resident, the basic exemption limit in her case shall be €2,50,000 instead of €3,00,000 Particulars Rate of tax | Total ian Fist €2,50,000 Ni Nil Next ®2,50,000 3% 12,500.00 income exceeding 82,50,000 bu upto 85.00,000) Next 84,46,300 20% wren 1,01,760.00 [Add Health and education oss @ 4% 4.07040} 1,05,83040] Total tax (Rounded off) 1,05,830.00 stration 1.10 (A) Total income of R, an individual who is less than 60 years of age and resident in Inia, forthe previous year 2022-23 (Assessment year 2023-24) is %10,94,000. Compute the tax payable by R forthe assessment year 2023-24. Assume R does not opt tobe taxed under section 11SBAC. Solution Particulars ‘Tax Liability First £2,50,000 Nil Next €2,50,000 @ 5%, fe. upto €5,00,000 12,500 Next €5,00,000 @ 20%, ic, exceeding €5,00,000 but upto €10,00,000 @ 20% 1,00,000 ‘Above 10,00,000, ic, on balance 94,000 @30% 28,200 1,40,700) Add Health and education cess @ 4% 5,628 146,328) Totl-tax (rounded off) 1,46,330 [Note —Tax payable is rounded off to nearest rupees tn. Ifthe lat digit of tax payable is 5 or more, tis rounded off to higher ten, whereas ifthe last digit of tax payable is less than €5, itis rounded off to lower ten. (B)_ What shall be the tax payable if the total income of 810,94,000 is of R who is less than 60 years of age but noo-tesident in India. Solution ‘The tax lability will remain the same as the rates are same, whether R is resident or non-resident in India. (©) What shall be taxable payable if the total income is of R who is 62 years old and resident in India. Solution First €3,00,000 Nil Next €2,00,000 @ 5%, ie. upto &5,00,000 10,000 Next 85,00,000 @ 20%, ie, exceeding €5,00,000 but upto €10,00,000 : 1,00,000] [Above €10,00,000, ie, %94,000 @ 30% 28,200 1,38,200| Add: Health and education cess @ 4% 5,528| Total tax payable 143,728| Tax payable (Rounded off) 143,730] (D) What shall be the tx payable if Ris 62 years of age but non-resident in India. Solution First %2,50,000 Nil [Next €2,50,000 @ 5% f., upto 85,00,000 12,500 Next &5,00,000, Le, exceeding &5,00,000 but upto €10,00,000 @ 20% 100,000] [Above €10,00,000, ie, %94,000@ 30% 28,200] Scanned with CamScannerChap. 1 Tax payable (Rounded off) © Introduction ee | sez) ‘Add: Health and education cess @ 4% [a ‘What shal be the ax payable i Rs BD years of oe and resident i Indias Sete Ed First %5,00,000 1 1,00,000| [1.007000] 7 740,700) 5,628 1,46,328) Nil 1,00,000) [Next 5,00,000 @ 20% 28,200 Next 294,000 @ 30% 1,28,200 | 3.128| Adi: Heath nd education som @ 133.330) Total tax (Rounded off) (F)_ What stall be taxable payable, ithe foal income is of Ris 80 years of 98° ‘but noo ove. 11,46,330 in his case exemption iit shal be €2,50,000 instead of 85.00.00. See Solution (D) at ‘Solution Problem 1 Compute the tax liability of R, aged 60 years non-resident in Indi, £8,90,460, Assume R does not opt to be taxed under se TISBAC. Ans. £94.20 (See Problem | of Chapter | of Practical Approach] Problem 2 Total income of Mrs. R, aged 64 years resident in Indi liability. Assume Mes. R does not opt to be taxed under section TISBAC. ‘Ans.:£1,59,840, [See Problem 2 of Chapter | of Practical Approach] Problem 3 Total income of R, aged 70 resident in India, for the assessment year 202- “Assume R does not opt to be taxed under section 11SBAC. ‘Ans.: £1,04,920 [See Problem 3 of Chapter 1 of Practical Approach} Problem 4 ‘Total income of R aged $0 years es taxed under section 11SBAC. Ai 1.3g Assessee [Section 2(7)] ‘Assessee means & person by whom {dentin India is €4,35,400, Compute his tax liability. Assume R dos .: Nil [See Problem 4 of Chapter | of Practical Approsch] any tax of any other sum of whose total income for the previous 1a, forthe assessment year 2023-24 is ® yesident in India. ‘year 2022-23 is 11,45,640. Compute her tax 3-24 is €9,54,430. Compute his tax liability. es not opt to be ‘money is payable under this Act and includes the following: (i Every person in respect of whom any proceeding under the Income-tax ‘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 (0), to determine the loss sustained by hhim or by such other person; or (0) to determine the amount of refund ‘due to him or to such other person. (ii) A person who is deemed to be an assessee under any provisions of this ‘Act, Le, a person who is treated as an ‘assessee. This would include the legal representative of a deceased person or the legal guardian of minor if minor is taxable separately. (Git) Every person who is deemed to be fan assessee in default under any wisions of this Act. A person is said to be an assessee in default if he fails to comply with the duties imposed upon him under the Income- tax Act. For example: a person, paying interest to another person, is responsible for deducting tax at source on this amount and to deposit the tax with the Government. If he fails in either of these duties, ie., if he does not deduct the tax, or deducts the tax but does not deposit it with the Government, he shall be deemed to be an assessce in default. Scanned with CamScannerus ‘Systematic Approach to Income Tax Chap. 1 1. Every assessee isa ‘person’, but every person need not be an ‘assessee’. For example, X, an individual has earned total income of €2,40,000 in the previous year. He isa person but not an assessee because his total income is less than the ‘maximum exemption limit of 82,50,000 and no tax or any other sum is due from him. 2. A person may not have his own assessable income but may still be an assessee. For example, an assessee, who has ‘eamed an income of €1,45,000 in a previous year, fails to deduct the tax at source on salary paid by him, which he was required to do under the Act, shall be deemed to be an assessee in default. Although, he is not assessable in respect of his own income, as itis below the maximum exemption limit, but shall still be an assessce for not deducting the tax at ‘source, which he was obliged to do. 1.3h Charge of income-tax [Section 4] No tax can be levied or collected in India except under the authority of law. Section 4 ofthe Income-tax Act, gives such ‘authority for charging of income-tax. The base for levy of tax in any assessment year is normally the income of the previous year. However, in some cases, income-tax may be charged in respect ofthe income of a period other than the previous year. Although income-tax is charged on the income of the previous year in the relevant assessment year, but Income-tax shall bbe deducted at the source, or paid in advance, in the same previous year wherever it is so deductible or payable under any provisions of the Act. 1.344 Total Income To understand Total Income one must know the following: (A) Definition of Income (B) Concept of Income (©) Gross Total Income (D) Deductions permissible from Gross Total Income (A) Definition of Income [Section 2(24)}: Income includes: (profits and gains; (i) dividend; (iii) volumary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such religious purposes or by an association or institution referred to in section 10(21), 10(23) or 10(23CXiv), (9), (v) and (via) or by a electoral trust; (i) the value of any perquisite or profit in lieu of salary taxable under section 17(2) and (3); (0) any special allowance or benefit, other than perquiste included under (iv) above, specifically granted to the assessee to meet expenses wholly, necessarily and exclusively forthe performance of the duties of an office of employment of profit; (09) any allowance granted to the assessee either to meet the personal expenses atthe place where the duties of his office or employment of profit are ordinarily performed by him or ata place where he ordinarily resides or to ‘compensate him for the increased cost of living; (vii) the value of any benefit or perquisite, whether convertible into money or not, obtained from a company either bby a director or by a person who has a substantial interest in the company, or by a relative ofthe director or such person, and any sum paid by any such company in respect of any obligation which, but for such payment, would have been payable by the director or other person aforessid; (vit) the value of any benefit or perquisite, whether convertible into money or not, obtained by any representative assessee mentioned in clause (iif) or clause (Iv) of sub-section (1) of section 160 or by any person on whose bbchalf or for whose benefit any income is receivable by the representative assessee (such person being hereafter in this sub-clause referred to as the beneficiary’) and any sum paid by the representative assessee in respect of any obligation which, but for such payment, would have been payable by the beneficiary; (a) any sum chargeable to Income-tax under section 28(i), (ii), (iia, (iit) and (iii) of section 41 or section 59: (2) the value of any benefit or perquisite taxable under section 28(/v); (xi) any sum chargeable to Income-tax under section 28(»}; (xii) any capital gains chargeable under section 45; ‘(Cxiia) the fair market value of inventory referred to in clause (via) of section 28]; (ili) the profits and gains of any business of insurance carried on by a mutual insurance company or by @ co ‘operative society; 1 Inserted by Finance Act, 2018, w.e-. 1-04-2019. Scanned with CamScannerChap. 1 19 Introduction oes tnd gains of any business of banking (including providing credit facilities) carried on by a co: tive society with its members; ‘ny winnings from lots, crossword puzls, races including hrs acs ard games and other games of any ; ©* from gambling or betting of any form or nature whatsoever: ‘or the purpose of this sub-clause sub-clause— (1) “lottery” shall include winnings from prizes awarded to any person by draw af lots or by chance or in any other manner whatsoever under any scheme or arrangement by whatever name calel's (2) “card game and other game of any sort shall include any game show, an entertainment programme ‘ontelevision or electronic mode, in which people compete to win prizes or any other similar game Fay tm teceived by the asessee from his employees as contributions to any provident fund oF ‘superannuation or any fund setup under the provisions of the Employees’ State Insurance Ac, 1948 or any other fund for the welfare of such employe, (wi) pal cum received under a Key.man Insurance Policy including the sum allocated by way of bonus on such policy; (xia) (xv) oy (vil) any sum referred to in H on 10 in section 28(vi) (See Chapter 6); Where a company, not being a company in which the public are substantially interesied, recets, 1 SOY Previous year, fom any person being fact, any consideration for isue of shares tat exceeds the f= value of such shares, the aggregate consideration received for such shares as exceeds the fair mar the shares. [Section 56(2)viib)]; any sum of money referred to in section $6(2)(ix) (See Chapter 8); - assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver oF concession OF reimbursement (by whatever name called) by the Central Government or a State Government or any authority cor body or agency in cash or kind tothe assessee other th (@)_ the subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset in accordance with the provisions of Explanation 10 to section 43(1); a (8) the subsidy or grant by the Central Government for the purpose of the corpus of a trust or institution ‘established by the Central Government or State Government, as the case may be, shall also not form part of income. (eri) any sum of money or value of property refered to in section S6(2)(x) (See Chapter 8). '{(exii) any compensation or other payment referred to in clause (xi of sub-section (2) of section 565] (B) Concept of Income: Generally speaking, the word ‘income’ covers receipts inthe shape of money or money's worth which arise with certain regularity or expected regularity from a definite source. However, all receipts do not form the basis of taxation under the Act. Broadly, an analogy is drawn of a tree and the fruits of that tree. The tree symbolises the source from which one gets fruits which symbolises ‘Income’. The receipt arising from the sale of tree itself is, therefore, considered a capital receipt which is not income; but the receipts flowing from this source viz. fruits is income. On application of this analogy, it can be said that while the receipt arising from the sale of a hhouse is not income, the receipt arising from the realisation of ret is income. In the same way, receipt from the sale fof a machine is not income but from the sale of produce brought out from the machine is income. In these cases, however, ifa person deals in purchase and sale of house properties or machines, these assets do not remain a source ‘and the profit derived from activities of purchase and sale becomes income. The source need not necessarily be tangible asthe retum for human exertion is also income. 1. The above is a broad generalisation. While a distinction is generally made between the capital receipt and revenue receipt, as illustrated above, the Act has widened the scope of income by expressly including within the meaning of "Income", the receipts which do not fll under the broad concept explained above. For instance, the ‘Act specifically makes the profit arising from the sale of certain capital assets also subject to tax under certain cieumstaness as income unde the bead Capital Gains. The winnings fom loners, cessword puzzles, races, ceard games, ete, which do not arise from any definite source and do not have the ele ity have tiso been specfcalycarifed wo be Income’ under the Ae. —_ ewe inn 2. Its not the gross receipts but only the net receipts arrived at after deductin i i Connection with arin such recits,at are made the basis of taxation end exPemes ncured in 3. Some important principles which explain the importance of income for income-tax purpose are given below: (Regularity of Income: Income connotes periodical monetary return coming in with some conraf orpta a es fate ome coming wh ame rey Giz) (x) Se Inserted by Finance Act, 2018, w.e. 1-04-2019, Scanned with CamScanner20 w Wp @ o) wa, (vii) ity w& @) i) ii) (iti) come Tax Chap. 1 juction of a definite retur, excludi seit prin ale a hj is Pry hal nce hich de ate anything in he nature ofa mere wind HOWeVer ti oe emer, regulary wil not berated as income for x POSES ° TET ef cash oly. I may alike Form of Income: The income recived by tue, Wherever income is received in Kind ‘some other property or right which has ' prescribed and this value shall be taken to be the perquisites then their value has to be found as per the rules prescr tobe the income. : tainted. For purposes of Income-tax, there is Tainted egal Income: Income is income, thoUth just like any legal income,” "? difference between legal and tainted income. Even ileg aa cme vom: Where an assessee applies an income rg an obligation after en ee eee: "i would be an application of income and this would result the income reaches the bands ofthe asec, it would Bean appeal ire Os woul renin taxation of such income in the hands of the assessee. Howevet, AS Cnt ee = irate te hands fthe ass, smote ested as anineome ofc ts, Disputed Income: Any dispute regarding the ttle of the incor the assessment ofthe income in the hands ofthe recipient, The recipient i, therefore, chargeable to tax though there may be rival claims tothe source of the income. Contingent income: A contingent income is not income. Posed tat income as acredorbasarsen tothe sss Basis of Income: Income can be taxed on receipt basis or on accrual basis. income from business or income from other sources, the taxability would depend upon the method of accounting adopted by the assessee, while in other eases, it would generally be taxed on receipt or accrual basis, whichever happens carl, However, a contingent income, 'e, an income which may or may not arise cannot be taxed unless and ut suc contingency sew ocus andthe income arises tthe asses, Personal Gifts: Gifts received by a person on occasions like birthdays, marriage, festivals, etc., should not erry bathe neane of tne ese and therfore, cannot be taxed in the hands ofthe recipient as his income. However, gift of money or gift of immovable property or certain moveable property received by any person fiom unrelated person(s) shall be chargeable to income-tax if the aggregate sum of money of value of gift received inthe previous year exceeds 50,000. For details see Chapter 8. ‘Composite Income: Income-tax is a composite tax on all incomes received by or arising to a tax payer during a year. Therefore, tax will be imposed on the aggregate of all incomes eamed/eceived by the assessee during the year. Pin Money: Pin money received by a woman for her dress or private expenditure as also small savings effected by a housewife out of moneys given to her by her husband for running the expenses of the kitchen ‘would not be income in the eyes of the law. Any property acquired with the aid of such money or savings ‘would form a capital asset belonging to the lady. Lumpsum Receipt: Ia receipt isan income then whether it is received in lumpsum of in instalments would not affect its taxability; for example, if a person receives arrears of salary in a lumpsum amount, it would still be his income. Income must come from outside: A person cannot earn income from himself. Incase of mutual activities, where some people contribute tothe common fund and are entitled to participate in the fund and a surplus arises which is distributed tothe contributors of the fund, such surplus cannot be called income. ‘Revenue Receipt v Capital Receipt: Section 4 brings to charge tax on total income. Prima facie, in order to ‘come within the scope of the charging provision, the receipt in question should normaly be a revenue receipt. Capital receipts are normally exempt. However, certain capital receipts have been specifically included in the definition of income, some of which are: (2) Income by way of capital gains (Section 45]; ® Compensation fr modifiaonteminion of series [Seon 1709) (©) Compensation or other payment due to or received by some specified person covered under section 28(iN(a, (6), (€) and (4; ” (@) any sum or @ property received by any person from unrelated person(s) without consideration if the aggregate amount received or value of git during the previous year exceeds ®50,000. (e) any sum of money received as an advance or otherwise in the course of negotiations for transfer of @ capital asset, if,— (a) such sum is forfeited; and Systematic Approach (0 In be one whose obj Until the contingency has happened, it cannot be Scanned with CamScannerChap. 1 7 Introduction al ), ie, ifthe inventory is converted into a capita asset. | a ba the other hand, there are certain receipts which are though revenue receipts but do not form part of total income income pall Income: As per section 14, all income shall, for purposes of Income-tax and computation of total be classified under the following heads of income: Salaries, (Gi) Income from House Property, id Profits and Gains of Business or Profession, () Capital Gains, (©) Income from Other Sources. Aggregate of incomes comy bb jons and making i uted under the above 5 heads, after applying clubbing, provisi adjustments of set off and carry forward of lose, is known as Gross ToalTacome (GTP (Section 80B(5)] (©) Total Income: The otal income ofan asesee is computed by deducting fom the gross total income, ll deductions eeren pis under Chapter VIA of the Income-tx Act, ie, deductions under sections 80C to 80U. 1.3] Rounding off of Total Income [Section 288A] Tre a imcome. a8 computed above, shal be rounded of to the nearest multiple of en rupees and fr this purpose any For more, te saesStng of pase shal be ignored. Threat if such amount snot a mutple of en, thn, ifthe as figure is the amosant MS mount shall be inreased tothe next higher multiple of 10 and ifthe lst igure of Toal Income is less than 5, reed air lal be reduced to the next lower muliple of 10. For example, if the total income is €8,78.467, it shall be rounded off 0 88,79.470 and iit is %8,79,464.90, it shall be rounded off to €879,460. 1.3k How to compute tax liability on Total Income Of ihe Total Income, tax is calculated according tothe normal rates prescribed under the relevant Finance Act and special rates prescribed in the Income Tax Act The amount so computed, shall be increased b i Ith and ed ss calculated @ 4% , 3 a surcharge, ifapplicable and health and education ce: (ax * surcharge if any). The amount so arrived at is the tax lability ofthe person for that yea. 13:1 Rounding off of tax, etc. Section 288B] Zhe amount of tax (including tax deductible at source or payable in advance), interest, penalty, fine or any other sum payable, and the amount of refund due, under the provisions of the Income-tax Act, shall be rounded off to the nearest ‘multiple of ten rupees and, for this purpose, where such amount contains a part of ten rupees then, if such part i five rupees ‘oF more it shall be increased to ten rupees and if such partis less than five rupees it shall be ignored. ‘THEORETICAL QUESTIONS, 1. Explain the meaning of previous year. What would be the previous year for the new business started during the financial year? Explain with examples. 2 Income-tax is assessed on the income of the previous year in the next assessment year. State the exceptions to this rule. 3. "Income-tax is charged on income of the previous year." Do you fully agree with this statement? If not, what are the exceptions? 4. Define the term ‘Income’. Distinguish between Gross Total Income and Total Income. ‘5. Write short notes on the following terms used in the Income-tax Act, 1961: (a) Person, (4) Gross Total Income, (c) Assessee. 66. Discuss the special provisions ofthe Income-tax Act, in respect ofthe assessment of: (a) Persons leaving India, and (4) Income from a discontinued business. 7._ What are the essential features ofthe term income"? Explain For Multiple Choice Questions (MCQ's), Practical Questions and Solved Question Papers of Past Examinations — See separate Handbook available as accompaniment to this book Scanned with CamScanner