Basic Concepts of

Income Tax
Dr Vijay Kumar Khurana
Professor, DPC-IM, Delhi

Ph D, MBA (FMS), UGC–NET, M Sc,

PGD Corp Laws & PGD Tax Laws
Ex-Chief Editor (Research Journal Evolution)
Ex-Editor (Research Journal Effulgence)
 What is tax?
To tax (from the Latin taxo; "I
estimate", which in turn is from
tangō; "I touch") is to impose a
financial charge or other levy upon
a taxpayer (an individual or
legal entity) by a state or the
functional equivalent of a state
such that failure to pay is
punishable by law.
Whether Taxes are justified?
Whether Taxes are justified?
States are responsible for social welfare and
need money for same.
For ensuring equitable distribution of income &
wealth
Generation of funds for education, security,
defence, health-care & social welfare
Funds for Modernization & Expansion of
Infrastructure
Healthy growth of economy
Economic stability
 Types of Taxes
Progressive, Regressive &
Proportional Taxes

Direct Taxes or Indirect Taxes

 What is Income Tax?

An income tax is a tax levied on

the income of individuals or businesses
(corporations or other legal entities).
Sec 2(43) … income tax chargeable
under the Act.
When the tax is levied on the income of
companies, it is often called a corporate
tax, corporate income tax, or profit tax.
 Financial Year (FY)
The financial information is
reported on a yearly basis, and the
year for which this information is
reported is called a Financial Year
or FY in short.
The actual start and end of a
financial year varies from country
to country.
 Previous Year (PY)
& Assessment Year (AY)
Income earned in a year is taxable
in the next year. The year in which
income is earned is known as
previous year and the next year in
which income is taxable is known
as assessment year. In other
words, previous year is the
financial year immediately
preceding the assessment year.
 Person
The term “person” includes:
a. an individual;
b. a Hindu undivided family;
c. a company;
d. a firm;
e. an association of persons or a body of
individuals, whether incorporated or not;
f. a local authority; and
g. every artificial juridical person not
falling within any of the preceding
 Assesee
“Assessee” means a person by whom
income tax or any other sum of money is
payable under the Act. It includes every
person in respect of whom any
proceeding under the Act has been taken
for the assessment of his income or loss
or the amount of refund due to him. It
also includes a person who is assessable
in respect of income or loss of another
person or who is deemed to be an
assessee, or an assessee in default under
any provision of the Act.
How Income Tax is levied ???
Tax is levied through Income Tax Act, 1961
and annual Finance Acts, which are applicable
to a particular previous year.
Charging section must specify ‘taxable person’,
taxable event and subject of taxation.
No income should be taxed presumptively.
No income should be taxed twice.
Statute must pass muster of Article 14 of the
Constitution.
Income
The definition of the term “income”
in section 2(24) is inclusive and
not exhaustive. Therefore, the
term “income” not only includes
those things that are included in
section 2(24) but also includes
those things that the term signifies
according to its general and
natural meaning.
Contd … Income
As per the definition in section 2(24), the
term income means and includes:
profits and gains
dividends
voluntary contributions received by a
trust created wholly or partly for
charitable or religious purposes or by an
institution established wholly or partly
for such purposes
Contd … Income
the value of any perquisite or profit in lieu of salary
taxable under clause (2) and (3) of section 17 of the act
any special allowance or benefit, other than those
included above
any allowance granted to the assessee either to meet
his personal expenses at the place where the duties of
his office or employment of profits are ordinarily
performed by him or at a place where he ordinarily
resides or to compensate him for the increased cost of
living
capital gains
any sum chargeable to income tax under section 28 of
the income tax act
Contd … Income
any winnings from lotteries, crossword
puzzles, races, including horse races, card
games and games of any sort or from gambling
or betting of any form or nature whatsoever
any received as contribution to the assessee's
provident fund or superannuation fund or any
fund for the welfare of employees or any other
fund set up under the provisions of the
emplyees state insurance act
profits on sale of a licence granted under the
imports (control) order, 1955 made under the
imports and exports (control) act, 1947
GTI
As per section 14, the income of a person is
computed under the following five heads:
1. Salaries.
2. Income from house property.
3. Profits and gains of business or profession.
4. Capital gains.
5. Income from other sources.
The aggregate income under these heads is
termed as “gross total income”… GTI. In other
words, gross total income means total income
computed in accordance with the provisions of
the Act before making any deduction under
sections 80C to 80U.