Income Tax

Classification of Taxes
 Direct Taxes
 Indirect Taxes

 Under direct taxes, the incidence of

tax fall on the person who pays it-
Example Income Tax
 Under indirect taxes, the incidence of
tax fall on a person-other than the
one who pays it- Example Sales Tax
Income Tax- Basics
 Income tax is a Central Tax
 Governed by the Income tax act 1961
 The act is used to calculate total
taxable income of an assessee from
various sources for an assessment
year
 The rate of tax is determined by the
annual finance bill passed every year
by parliment
 Assessee

 A person from whom tax or any other

money is payable under the income
tax act
 Includes
 Individuals
 HUF
 Company
 Firm
Sources of income
 Salaries
 Income from house property
 Profit from business and gain
 Capital gains
 Income from other sources
Assessment year
 The year in which the income earned
from the previous year is assessed
Previous year
 The year in which the income taxed in
the assessment year is earned
Income from business and
profession
 The methods for computation of
income for a business and a
profession are similar
Computation
 Calculated as
 Taxable income less
 Admissible deductions (under sec 30
to 37(1))
Rents/Rates/Taxes/Repairs and
Insurance for business premises
(sec 30)
 In case of rented premises, the rent
paid and cost of repairs if assessee
has undertaken to bear the costs
 In case of own premises, current
repairs
 Land revenue/local taxes etc
 If premise used partly for professional
purpose, the expenses to be pro-
rated
Repairs and Insurance for
machinery, plant and furniture (sec
31)
 Only current repairs are admissible
Depreciation (sec32)
 Admissible depreciation has to be
calculated as per the provisions of the
act and will differ from the
depreciation calculated as per the
company's act
Condition to avail depreciation
 Asset should be owned (wholly or
partly) by the assessee
 Asset should be actually used for
business
Special conditions
 No depreciation on land
 The lessee allowed depreciation in
case of hire purchase (not in case of
finance lease)
 No 100% depreciation on assets
costing less than Rs. 5,000
Block of assets
 Group of assets falling within the
same class of assets in respect of
which the same rate of depreciation
has been prescribed by the act
Actual cost
 Actual cost of the asset to the
assessee reduced by portion of cost
met directly or indirectly by any other
person/authority
 Interest can be added to actual cost
of asset
Written down value for a block
 Carrying amount at the start of the
PY
 ADD : Actual cost of assets acquired
in PY
 LESS : Money from sold assets
Rate of depreciation
 As per table
 In case new asset used for less than
180 days, half the rate admissible
Capital gain and Capital loss
 If written down value of a block
becomes negative, there is a capital
gain
 If all assets in a block are sold and
the block has a positive wdv, there is
a capital loss
Deferred tax