Invertis University

Topic:- Basic Concept of Income

Tax

Name:- Navjot Singh

Student ID:- BB2019108
BBA (III Semester)
Content
1. What is tax?
2. Concept of Income Tax Act
3. Income Tax law in India
4. Person
5. Assessee
6. Assessment Year
7. Previous Year
8. Heads of Income
9. Tax Rates
10. Surcharge
11. Education Cess and Secondary Higher Education Cess
What is Tax?
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.
Concept of Income Tax Act
 “Income Tax is levied on the total income of the previous year
of every person”. To understand the basic concept .It is very
important to know the various other concepts.
 In common parlance, Income is known as a regular periodic
return to a person from his activities. However, the Income
has broader classified in Income Tax law. The Income Tax Act,
even take consideration of income which has not arisen
regularly and periodically. For instance, winning from
lotteries, crossword puzzles, income from winning of shows is
also subject to tax as per income tax
 Moreover, the income is defined in Section 2(24) of the Act
Income Tax law in India
The Income Tax law in India consists of the following components;
 Income Tax Act, 1961: The Act contains the major provisions related to

Income Tax in India.

 Income Tax Rules, 1962: Central Board of Direct Taxes (CBDT) is the body

which looks after the administration of Direct Tax. The CBDT is empowered to
make rules for carrying out the purpose of this Act.
 Finance Act: Every year Finance Minister of Government of India presents the

budget to the parliament. Once the finance bill is approved by the parliament
and get the clearance from President of India, it became the Finance Act.
 Circulars and Notifications: Sometimes the provisions of an act may need

clarification and that clarification usually in a form of circulars and

notifications which has been issued by the CBDT from time to time. It
includes clarifying the doubts regarding the scope and meaning of the
provisions.
Person
 Income tax is levied on the total income of the previous year of every person.
In general terms, the meaning of a person can be interpreted in a short term.
Whereas, as per Section 2 (31), Person includes:
 i. an individual,
 ii. a Hindu undivided family (HUF),
 iii. a company,
 iv. a firm,
 v. an association of persons (AOP) or a body of individuals (BOI), whether

incorporated or not,
 vi. a local authority, and
 vii. every artificial juridical person (AJP), not falling within any of the preceding

sub-clauses.
 The definition of Person starts with the word includes, therefore, the list is

inclusive, not exhaustive.

Assessee
 An assessee is a taxpayer means a person who under
the income tax act is subject to pay taxes or any other
sum of money, as defined under section 2 (7) of the
Act. The expression ‘any other sum of money’ includes
other such obligations payable, for instance fine,
interest, penalty and other tax etc.
Assessment Year
 “Assessment Year” means the year in which income of
the previous year of an assessee is taxed. The timed
lap of assessment year is of twelve months beginning
from the 1st April every year. The period starts from
1st April of one year and ending on 31st March of next
year. Broadly, assessment year is defined under section
2 (9) of the Act.
 Previous Year
 Income earned during the year is taxable in the next year.
The definition of “Previous Year” is given under section 3 of
the Act. Previous Year is the year in which income is earned.
Previous year is the financial year immediately preceding the
relevant assessment year. From 1989-90 onwards, every
taxpayer is obliged to follow financial year (i.e., April 1st of
one year to March 31st of next year) as the previous year.
 For a newly set up business or profession, the first previous
year will start from the day from which that business or
profession has commenced, but the period of ending will
remains same (i.e., 31st March).
Heads of Income
 As per Income tax, section 14 classifies income under
five heads:
 i. Income from salaries
 ii. Income from House Property
 iii. Profits and gains of business and profession
 iv. Capital Gains
 v. Income from other sources
Tax Rates
 The Income is taxed at the rates prescribed by the
relevant Finance Act. The tax levied on the basis of a
slab system where different tax rates have been
directed for the different slab. In India, there are three
categories of individual taxpayers:
 i. An individual below the age of 60 years,
 ii. A senior citizen above the age of 60 years, but below

the age of 80 years,

 iii. A super senior citizen above 80 years of age.
 The tax slab varies according to the different persons.
Surcharge
 The Surcharge is commonly known as Tax on Tax. It is
an additional tax levied on the taxpayers on a special
group of people. It is an additional tax liability levied
on the person having more income than prescribed.
Education Cess and
Secondary Higher Education
Cess
 The amount of income tax shall be increased by an
Education Cess on Income Tax by 2% and Secondary
and Higher Education Cess by 1% of the tax liability.