Direct Taxation

A Fine is a Tax for doing something

wrong.

A Tax is fine for doing something

Right.
 Why Government charges tax?
 Government of India provides many kind
of services to its residents as well as non
residents such as infrastructure facility,
security etc. and moreover a place where
people can earn and live.
 In providing these facilities government
incurs a huge amount of expenditure and
to meet those expenses, Government
needs funds and there is no specific
source from which Government can
generate revenue.
 Therefore, we can say tax is a fees charged by the Government
against the services provided.
 Government’s major source of revenue is tax (Direct tax and
Indirect tax)
 Constitution of India
 Constitution of India is the
supreme law i.e. all other laws in
India have to be consistent with the
constitution and if it is not
constitutionally valid, it can’t be
said a legal law.
 Article 246 and 248 and schedule
vii of the constitution distributes
the power to impose and collect
taxes between the Central
Government and State
Government.
 15th August 1947 Independence
Day: on this day India got Independence.
 26th January 1950 Republic Day: on this day Constitution of
India came into force as governing document of India.
 Constitution of India

Central Structure State Structure

Parliament State Legislative Assembly

Parliament can make laws for the Legislature of State may make laws for
whole or any part of the territory of the whole or any part of the States.
India
 Types Of Taxes
Direct taxes
A direct tax is that tax whose burden is borne by the same person on
whom it is levied. It is based on the income and property of a
person. Thus income tax, corporation tax on company’s profits,
property tax, capital gains tax, etc. are examples of direct taxes.

Indirect taxes
An indirect tax is that tax which is initially paid by one person, but
the burden of which is passed over to some other person who
ultimately bears it. It is levied on the expenditure of a person.
Goods and Services tax, Customs duty etc. are examples of indirect
taxes.
 Sources to Read Income Tax
Legal
Annual Decision Of
Income Tax Finance Act High Court
Income Tax Rules 1962 & Supreme
Act 1961 Circulars &
Court
(Finance Act Notification
(Rules are made tells about the
(Income tax act to carry out basic rates of tax in
covers basic (Decisions of
provisions of advance i.e. rates (Circulars are High
provisions of income tax of tax for the issued for
income tax, court/Supreme
effectively and year in which internal Court are final
Assessment efficiently. assessee would department
procedures, decisions i.e.
However in any earn the income. workings i.e. neither the
Penalties & case rules cannot For e.g..Finance circulars cannot
prosecutions i.e. assessee nor the
override the act 2018 tells bind assessee department can
computation of basic provisions about the rates of and notifications
income, challenge the
to income tax i.e. tax for are issued for decision of
computation of rules are sub- assessment year general public.)
tax liability etc.) Supreme Court.
ordinate to the 2019-20 i.e. for Note- High court
act.) the previous year decision can be
2018-19 challenged in
Supreme Court.)
 ADMINISTRATIVE SET UP

Ministry of Finance

Department of Revenue

The Central Board Of Direct Tax (CBDT)

Chief CIT ( Commissioner Of Income Tax)

CIT (APPEALS)

Assessing Officers
JCIT (Join CIT) ITO (Income Tax Officer) Additional or Deputy CIT
 Charging section of Income Tax Act
[Section 4]
Every person, who is an assesse and whose total income
exceeds the maximum exemption limit, shall be chargeable to
the income tax at the rate or rates prescribed in the Finance Act
as applicable to the relevant assessment year. Such income tax
shall be computed on the total income of the previous year in
the relevant assessment year.

In respect of income chargeable to Income Tax, tax shall be

deducted at source (TDS) or paid in the form of advance tax in
accordance with the relevant provisions.
 Interpretation Of Charging Section

 Person – Section 2(31)

 Assessee – Section 2(7)
 Assessment – Section 2(8)
 Assessment year – Section 2(9)
 Previous year – Section 3 read with Section 2(34)
 Income – Section 2(24)
 Rates of Tax
 Person: 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 (being Municipality, Municipal
Corporation, Panchayat or Cantonment Board) and
vii. every Artificial Juridical Person, not falling within any of the
preceding sub-clauses
 Assessee: Section 2(7)
According to sec. 2(7) assessee means
 A person by whom any tax or any other sum (penalty/interest)
is payable.
 A person in respect of whom any proceeding under the Act is
taken.
and it includes:
Every person :
 who is assessable for his income, loss or refund or the income,
loss or refund of any other person in respect of which he is
assessable, or
 who is deemed to be an assessee, or
 who is deemed to be assessee in default.
 Assessment: Section 2(8)

• Assessment includes reassessment

• This is the procedure by which the income of an assessee is

determined by the Assessing Officer. It may be by way of a
normal assessment or by way of reassessment of an income
previously assessed.
 Assessment year: Section 2(9)

• It means the period of 12 months commencing on the first

day of April every year.
• The year in which tax is paid is called the assessment year
• Income of previous year of an assessee is taxed during the
following assessment year at the rates prescribed by the
relevant Finance Act.
 Previous year: Section 3 read with
Section 2(34)
• It means the previous year as defined in section 3.
• According to section 3, previous year means the financial
year immediately preceding the assessment year.

In the case of a business or profession newly set up, or a source

of income newly coming into existence, in the said financial
year, the previous year shall be the period beginning with the
date of setting up of the business or profession or, as the case
may be, the date on which the source of income newly comes
into existence and ending with the said financial year.
 Concept of income [refer section 2(24)]
All revenue receipts are taxable unless specifically exempted and
all capital receipts are exempt unless specifically taxable.
Income tax act gives inclusive definition of income to include:
 Profits and gains
 Capital gains
 Dividend income
 Capital gains
 Winning from lotteries etc.
 Allowances and perquisites etc.
Generally, amount of money received from transfer of the revenue
generating asset (i.e. the right which generates income) will be
capital receipt and income from the product which arises out of that
asset will be revenue receipt,
Examples:

1. Income from sale of shares will be capital receipt and

dividend income arises out of it will be revenue receipt.

2. Income from transfer of house property will be capital receipt

and rental income arising from it will be revenue receipt.

3. Income from transfer of machine will be capital receipt and sale

of product made using the machine will be revenue receipt.
As per golden rule of income tax we can conclude that all receipts
are not assessable to tax. All receipts by an assessee can not
necessarily be deemed to be income of the assessee for the purpose
of income tax and the question whether any particular receipt is
income or not depends on the nature of the receipt and scope read
with residential status of a person.

1. Income may be in cash or in kind.

2. Illegal income is also subject to tax.
3. Income must come from outside
4. Contingent income will not form part of income.
5. Method of accounting & Income Computation and Disclosure
Standards are only applicable for the heads PGBP and IOS.
 Classification of Income
Income Tax Act classifies Income into following Heads:

1 Income from Salary

2 Income from House Property

3 Profits & Gains of Business or Profession

4 Capital Gains

5 Income from Other Sources

Personal Taxation
 Income Tax Slabs (For A. Y. 2022-23)

(A) Tax Slab Tax Rate (B) Tax Slab Tax Rate
(any Individual* / HUF) (Resident Individual)
(*Below 60 Years of age) (60 year and above i.e. Resident
Senior Citizens)

Up to Rs. 2.5 Lakhs 0% Up to 3 Lakhs 0%

2,50,000 to 5 Lakhs 5% 3,00,000 to 5 Lakhs 5%

5,00,000 to 10 Lakhs 20% 5,00,000 to 10 Lakhs 20%

Above 10 Lakhs 30% Above 10 Lakhs 30%

 Income Tax Slabs (For A. Y. 2022-23)

(C) Tax Slab Tax Rate

(Resident Individual)
(80 year and above i.e.
Resident Very Senior Citizens)

Up to 5 Lakhs 0%
5,00,000 to 10 Lakhs 20%
Above 10 Lakhs 30%
Income Tax Slabs (For A. Y. 2022-23)
New optional tax regime u/s 115BAC

Any individual / HUF Tax Rate

Up to Rs. 2,50,000 0%
From Rs. 2,50,000 to Rs. 5,00,000 5%
From Rs. 5,00,000 to Rs. 7,50,000 10%
From Rs. 7,50,000 to Rs. 10,00,000 15%
From Rs. 10,00,000 to Rs. 12,50,000 20%
From Rs. 12,50,000 to Rs. 15,00,000 25%
Above Rs. 15,00,000 30%
 Surcharge on income tax

Range of Total Income Surcharge

< / = Rs. 50 Lakhs Nil
> Rs. 50 lakhs and < / = Rs. 1 Crore 10% of tax
> Rs. 1 Crore and < / = Rs. 2 Crore 15% of tax
 Health and Education Cess (HEC)
 Health and Education Cess shall be levied at the rate of 4% of the
Income tax.

 This levy of 4% HEC shall be calculated & levied on the amount

of Income tax even if no surcharge is applicable.

 In case surcharge is applicable, HEC shall be levied on the

aggregate amount of Income tax and surcharge thereon (after
allowing marginal relief, wherever applicable).

 HEC shall be computed after allowing rebate u/s 87A, wherever

applicable.
 Marginal Relief
Provided that in the case of persons having total income exceeding rupees
fifty lakh or rupees one crore, the total amount payable as income-tax and
surcharge on such income shall not exceed the total amount payable as
income-tax on a total income of rupees fifty lakh or rupees one crore by more
than the amount of income that exceeds rupees fifty lakh or rupees one crore.
Eg: Mr. Ramesh derives has a total income of Rs. 51,00,000. Compute the
tax liability for the relevant assessment year, assuming that he has not opted
for payment of tax u/s 115BAC.
Ans: Income tax & surcharge = Rs. 14,12,500
Marginal Relief = Rs. 64,250
Total tax payable = Rs. 14,69,000

Calculate if the total income is Rs. 1,02,00,000

ITSc: Rs. 32,93,750 MR: Rs. 9,625 TTP: Rs. 34,25,500
 Rebate from income tax to resident
individuals [Section 87A]
An assessee, being an individual resident in India, whose total
income does not exceed Rupees Five lakhs (5,00,000), shall be
entitled to a deduction, from the amount of income-tax (as
computed before allowing the deductions under this Chapter) on
his total income with which he is chargeable for any assessment
year, of an amount equal to hundred per cent (100%) of such
income-tax or an amount of Rupees Twelve thousand five
hundred (12,500), whichever is less.
i.e. the rebate shall be available if an individual satisfies both the
following conditions:
• He / she is a resident individual and
• His / her Total Income is equal to or less than Rs. 5,00,000
Note: 1) Rebate u/s 87A is allowed from tax payable before adding HEC on income tax
2) Rebate u/s 87A is not available in respect to tax payable on long term capital gains u/s 112A
 Rebate from income tax to resident
individuals [Section 87A]
Total Income Tax payable Rebate u/s 87A Tax Payable +
(Rs.) before HEC (Rs.) 4% HEC (Rs.)
(Rs.)
2,70,000 1,000 1,000 0
4,90,000 12,000 12,000 0
5,00,000 12,500 12,500 0
9,00,000 92,500 0 96,200
12,00,000 1,72,500 0 1,79,400
 Summary of tax rates for A.Y. 2022-23
Slabs (Rs.)
Status of individual
Nil 5% 20% 30%
Resident / non- 250,000 – 500,000 – 10,00,000 and
250,000
resident 500,000 10,00,000 above

Resident – Senior
3,00,000 – 500,000 – 10,00,000 and
Citizen (60 to 79 3,00,000
500,000 10,00,000 above
years)

Resident – Very
500,000 – 10,00,000 and
Senior Citizen (80 500,000 -
10,00,000 above
years & above)

• Health & Education Cess @ 4%

• Surcharge @ 10% of tax where total income exceeds Rs. 50 lakh & is ≤ Rs. 1 crore
• Surcharge @ 15% of tax where total income exceeds Rs. 1 Cr & is ≤ Rs. 2 crore
• Rebate upto Rs. 12,500 available to resident individuals having income ≤ Rs.
 Rounding off of total income [Section
288A]
The amount of total income computed in accordance with the
provisions of the Act shall be rounded off to the nearest multiple
of ten rupees.

For this purpose, paise shall be ignored and five rupees and above
shall be rounded off to the next multiple of ten rupees

Eg: if the amount of total income is Rs. 99,994 the same shall be
rounded off to Rs. 99,990 and if the amount of total income is Rs.
99,995 the same shall be rounded off to Rs. 1,00,000
Rounding off of amount payable & refund
due [Section 288B]
Any amount of tax payable or refund due under the provisions of
the Act shall be rounded off to the nearest multiple of ten rupees.

For this purpose, paise shall be ignored and five rupees and above
shall be rounded off to the next multiple of ten rupees

Eg: if the amount of tax payable is Rs. 29,994.90 the same shall be
rounded off to Rs. 29,990 and if the amount of tax payable is Rs.
29,995.01 the same shall be rounded off to Rs. 30,000
Computation of total income and tax
A. Determination of Residential Status
B. Heads of Income
1.) Income from Salary XXX
2.) Income from House PropertyXXX
3.) Profits & gains of Business/Profession XXX
4.) Capital Gains XXX
5.) Income from Other Sources XXX
C. GROSS TOTAL INCOME (Sec. 80B) XXX
Less: Deductions under chapter VI-A (Sec.80C - 80U) (XXX)
D. TOTAL INCOME [Sec.2(45)] (rounded off) XXX
E. Tax Due (As Per Slab) XXX
Add / Less: Surcharge / Rebates / Marginal Relief XXX
Add: Health & Education Cess XXX
F. Tax Payable (rounded off) XXX
 Further Readings
Reference Books
1. Students Guides to Income Tax Vinod K. Singhania
2. Income Tax – Theory, Law & Practice T. N. Manoharan
3. Income Tax Law & Practices Girish Ahuja
4. Students Guides to Income Tax Bangar

Online Resources
5. www.incometax.gov.in
6. www.incometaxindia.gov.in
7. www.itatonline.org
8. www.manupatrafast.com
9. www.allindiataxes.com