INCOME TAX

LAW
AND PRACTICE II

Dr.KUMADEVI
 TAX - Introduction
• WHAT IS TAX?
• WHO WILL COLLECT TAX ?
• WHY?
 What is Tax?
Tax is money that people have to pay to the government.
For example, Taxes are used to pay for people who work for the
government, such as the military and police, provide services such
as education and health care, and to maintain or build things like
roads, bridges and sewers.
 Types of Tax

Direct Tax Indirect Tax

Indirect taxes are collected a bit differently from
Direct tax can be derived from its name which
direct taxes and these are consumption-based
implies that this tax is paid directly by the taxpayer
taxes that are applied to goods or services
to the government.
when they are bought and sold.

The most common examples of this type of tax in The government receives indirect tax payments
India are Income Tax and Wealth Tax. from the seller of the good/service.

From the government’s perspective, estimating tax

earnings from direct taxes is relatively easy as it The seller, in turn, passes the tax on to the end
bears a direct correlation to the income or wealth user i.e. buyer of the good/service.
of the registered taxpayers.
 Evolution of Income Tax

An Income tax is a tax imposed on individuals or

entities that varies with their respective income
or profits.
In India tax was introduced by the first time in
1860,by Sir James Wilson in order to meet the
losses sustained by the government on account
of the military mutiny of 1857.
In 1886 Separate Income Tax Act was passed
Again in 1918 New Income Tax Act was passed
 Evolution of Income Tax

• Again it was replaced by another New Act in

1922,has become very complicated on account of
numerous amendments ,therefore the government
of referred it to the Law OF Commission.(with a
view to simplify and prevent of evasion of tax)
• The Law of commission submitted the report in
1958 in the consultancy of Ministry of India.
• Finally the Income Tax Act was passed in September
1961,came into operation w.e.f 01.04.1962.
 Evolution of Income Tax

• It extends to whole of India including Jammu

and Kashmir.
• Rate of Income Tax are given in the “finance
Act "passed by the parliament every year.
• Income tax is a direct tax, burden and
incidence are on the same person.
• It is levied and collected by the Central
Government
What is gross total income?
The ‘gross total income’ (GTI) is the total income you earn by
adding all heads of income. Income from salary, property,
other sources, business or profession, and capital gains earned
in a financial year are all added to arrive at the GTI.

What is total income?

The ‘total income’ (TI) is derived after subtracting the
various deductions under Section 80 from the GTI. So, you
first calculate the GTI and then subtract the deductions to
arrive at the TI.
Difference between Gross Total Income & Total
Income

To understand their difference in simple terms, look at

the following formulae:

TI = GTI – deductions under Section 80

Or

GTI = TI + deductions under Section 80

To calculate GTI, you add the following:
Income from salary: This includes the earning from employment.

Income from house property: This includes any rent you earn by
letting out a house.

Income from business or profession: This includes the income

earned by a businessman or a self-employed professional.