DAY -1 REPORT

WHAT IS THE MEANING OF TAX?

Let us begin by understanding the meaning of tax;

Article 366 (28) of the constitution of India defines the term ‘taxation’ as
follows-
“Taxation includes the imposition of any tax or impost wheather general or
local or special and tax Shall be contribute accordingly.”

Taxes are considered to be the “cost of living in a society.” Taxes are levied by
the government to meet the common welfare expenditure of the society. There
are two types of taxes- 1. Direct taxes 2. Indirect taxes
Direct Taxes; if tax is levied directly on the income or wealth of a person then
it is an indirect tax the person who pays the tax to the government, can not
recover it from somebody else. i.e. The burden of direct tax can not be shifted
I.g. Income tax.
Indirect Taxes; If tax is levied on the price of a good or service, then, it is an
indirect tax e.g. goods and services tax (GST) or custom duty. In the tax of
indirect taxes the person paying the tax passes on the incidence to another
person.
Why are taxes levied ?
The reason for levy of taxes is that they constitute the basic source of
revenue to the government revenue so raised is utilised for meeting the
expenses of government like defence provision of education, healthcare,
infrastructure facilities like like roads dams etc.
Power of levy taxes;
The constitute of India in article 265 lays down that, “No tax Selvi leave it or
collected accept by authority of law accordingly for level of any tax, a law
needs to be frame by the government.”
Constitution of India gives the power to levey and collect taxes,whether direct
or indirect to the central and the state government the parliament and state
legislature are empowered to make laws the matters enumerated in the
seventh schedule by virtue of article 246 of the constitution of India.
Seventh schedule to Article 246 contains three lists which enumerate matters
under which the parliament and the state legislature have the authority to
make laws for the purpose of levey of taxes. The following are the lists
(i) Union List: parliament has the exclusive powered to make laws on
the matters contained in Union List.
 (ii) State List: the legislatures of any State has the exclusive power to
make law on the matters contained in the State List.
(iii) Concurrent List: Both parliament and state legislatures have the
power to make laws on the matters contained in the Concurrent List.
Income Tax Law
Income-tax is a tax levied on the total income of an assessee, being a person
charged under the provisions of this Act, for the relevant previous year.
For understanding Income tax law in India, the following components need to
be studied:
➢ Income-tax Act, 1961
➢ Annual Finance Acts
➢ Income-tax Rules, 1962
➢ Notification and Circulars, issued from time to time
➢ Judicial Decisions
2.Charge of Income Tax [Section 4] :
As provided in Section 4, the total income of the previous year of every
person shall be Charged to Income Tax at the rates prescribed in the annual
Finance Act as applicable to the relevant assessment year.
3. Assessment Year [Sec 2 (9)]:
“Assessment Year means the period starting from April 1 and ending on March
31, next Year.”
Income of Previous Year of the Assessee is taxed during the next following
assessment year at the rates prescribed by relevant Finance Act.’
4.Previous Year [Sec 3]: “The year in which income is earned is known as
Previous Year. Previous Year is the Financial Year immediately preceding the
Assessment Year.”
Notes: * All assessees are required to follow financial year (i.e. April to March)
as previous Year. This uniform previous year has to be followed for all sources
of income.
5.Person [Sec 2(31)]: The income tax is charged in respect of total income of
the previous year of every person. Here, the person means,

• Individual
• Hindu undivided family
• A company
• Association of individual
• Body of individual
• Artificial person
• Local authority
6.Assessee [Sec 2(7)]: Assessee means a person by whom any tax or any
other sum of money is payable under this Act. It also includes the following:
Every person in respect of whom any proceeding under this Act has been
taken for the Assessment of his income:
❖ Every person who is deemed to be an assessee under any provisions of
this Act.
❖ Sometimes, a person becomes assessable in respect of the income of
some other Persons. In such case also, he is considered as an
assessee. For example, legal Representative of a deceased person;
❖ Every person who is deemed to be an assessee in default under any
provision of this Act. For example, where a person making any payment
to other person is liable to Deduct tax at source, and if he has not
deducted tax at source or has deducted but not Deposited the tax with
the government, he shall be deemed to be an assessee in default . Every
assessee is a ‘person’, but every person need not be an assessee.
7. Certain Principles relating to Income under Income-tax Act : The
following are the important principles relating to income:
➢ Income generally refers to revenue receipts, but however under the
Income-tax Act, 1961, Certain capital receipts have also been
specifically included within the definition of income.
➢ The income to be considered for tax purpose shall be net receipts and
not gross receipts Net Receipts are arrived at after deducting the
expenditure incurred in connection with earning Such receipts.
➢ Income is taxable Esther on due basis or receipt basis, as provided
under the respective head Of income. For the purpose of computing
income under the heads Profits and gains of Business or profession and
Income from other sources”, the method of accounting which is
Regularly followed by the assessee should be considered, which can be
either cash system or Mercantile system.
➢ Income earned during the year i.e. the previous year shall be chargeable
to tax in the next Year i.e. the assessment year e.g. the income of the P.Y.
2022-23 shall be chargeable in the A.Y. 2023-24. But there are certain
exceptions to this principle (i.e. Accelerated assessment u/s 172, 174,
174, 175, 176) which are discussed in the Chapter ‘Liability in Special
Cases’.
8. Income: [See. 2(24)]
The definition of ‘Income given under section 2(24) is inclusive and not
exhaustive and Therefore it may be possible that certain items may be
considered as income under this Act.
According to its general and natural meaning, even if it is not included under
section 2(24). The term “Income” includes the following-
▪ Profit & Gains
▪ Dividend
▪ Voluntary Contributions received by Trust
▪ Perquisites in the hands of employees.
▪ Any Special Allowance or benefit
▪ City Compensatory Allowance/Dearness Allowance
▪ Any benefit or perquisites to a director
▪ Any benefit or perquisites to a representative assessee.
▪ Any sum chargeable under section 28, 41 & 59.
▪ Capital Gains
▪ Insurance Profit
▪ Banking income of a Co-operative Society
▪ Winning from Lottery.
▪ Employees Contributions towards provident fund
▪ Amount received under Keyman Insurance Policy.
▪ Amount exceeding Rs.50000/- by way of Gift received by Salaries [Secs.
15 to 17]
▪ an individual or HUF.
▪ 9. Heads of Income: [Sec. 14]
For the purpose of computation of total income under the Income-tax Act,
1961, all the Incomes shall be classified under the following 5 heads of
income:
(i) Income from House Property [Secs. 22 to 27]
(ii) Profits and Gains of Business or Profession [Secs. 28 to 44DB]
(iii) Capital Gains [Secs. 45 to 55A]
(iv) Income from Other Sources [Secs. 56 to 591]
Gross Total Income means aggregate of income computed under the above
five heads, after making clubbing provisions and adjustments of set off and
carry forward of losses.