Income Tax Basic Concepts PDF

Income Tax Income Tax Basic Concepts Power to levy Tax: Income-tax is the most significant direct tax. Entry 82 of the Union List i.e., List I in the Seventh Schedule to Article 246 of the Constitution of India has given the power to the Parliament to make...

Income Tax Income Tax Basic Concepts Power to levy Tax: Income-tax is the most significant direct tax. Entry 82 of the Union List i.e., List I in the Seventh Schedule to Article 246 of the Constitution of India has given the power to the Parliament to make laws on taxes on income other than agricultural income. Entry No. 46 of state list has gives power to State Govt. to levy tax on Agriculture Income.  Sources of Income Tax Law 1. Income Tax Act, 1961 IT Act is the main source of Income tax law. It's provide determination of Total Income, Tax Liability & Procedure of assessment etc. 2. Income Tax Rules, 1962 IT Act empowered Central Board of Direct Tax (CBDT) to make rules. All Forms, procedure, principles of Valuation of perquisites are provided in the Rules 3. Finance Act a. Presenting the Bill: Every year the Finance Minister presents a Finance Bill in the parliament, which contents various amendments proposed to be made in the direct and indirect taxes. Finance Bill 2023 presented by Nirmala Sitharaman on 1 Feb, 2023. b. Approval & Assent of Bill: As soon as the Bill passed by both the houses of the parliament and thereafter receives the assent of President, in becomes the Finance Act. Finance Bill 2023 became Finance Act 2023 on 31st March 2023 after receive assent of president. c. Amendments: The amendments proposed therein are then incorporated in the Income Tax Act. The FA brings amendments to Direct Tax Laws & it provides Tax rates also. d. The First Schedule to the Finance Act contains four parts which specify the rates of tax-  Part I of the First Schedule to the Finance Act specifies the rates of tax applicable for the current Assessment Year.  Part II specifies the rates at which tax is deductible at source for the current Financial Year.  Part III gives the rates for calculating income-tax for deducting tax from income chargeable under the head "Salaries" and computation of advance tax.  Part IV gives the rules for computing net agricultural income. 4. Circulars/Notifications from CBDT Circulars are issued by the CBDT to clarify the meaning & scope of certain provisions contained in the Act. Notifications are issued by Central Govt./CBDT to give effect to the provision of The Act. Circulars are binding to Assessing officer but not on Assessee and Courts. However Assessee can take advantage of Circulars which are beneficial to them. 5. Supreme Court & High Court Decisions Various issues which are arise out of the provisions of the Act are decided by HC/SC. Prof. Felix Anthonysamy M.Com, MBA, MA, B.Ed, NET, SET. Income Tax  Charge of Income Tax (Sec: 4) - Income Tax is charged for every Assessment Year - It is charge on every person as define u/s 2(31). - It is charge on the total income earned by the person during Previous Year. - The tax is levied at the rates prescribed by Finance Act.  Assessment Year (Sec: 2(9)) AY. Means the period of twelve months commencing on the 1st day of April every year. Income earned in previous year is taxed in Assessment year. The A.Y. 2023-24 is a period of 12 months commencing from the 1" April 2023 and ending on 31 March 2024.  Previous Year (Sec: 3) P.Y. means the financial year immediately preceding the assessment year. For A.Y. 23-24, the PY shall be period from 1" April 2022 to 31" March 2023 & the total income earned in PY 22-23 is assessed in the AY 23-24 Provided that, 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.  Income of a previous year is assessed in the assessment year following the previous year Exceptions: Cases where income of a previous year is assessed in the previous year itself 1. Shipping business of non-resident (Section 172) 2. Persons leaving India and he has no present intention of returning to India (Section 174) 3. AOP/BOI/Artificial Juridical Person formed for a particular event or purpose (Section174A) 4. Persons likely to transfer property to avoid tax (Section 175) 5. Discontinued business (Section 176)  Person (Sec: 2(31) Person includes - Individual - Hindu Undivided Family (HUF) - Company - Firm (Includes LLP) - Association of Person or Body of Individual (AOP/BOI) - Local Authority - Artificial juridical person 1. Individuals: An individual is a natural person who is a citizen of India or a resident of India. Under the Income Tax Act, an individual is taxed on his or her income. The income tax rates for individuals vary depending on their income level. 2. Hindu Undivided Family (HUF): An HUF is a type of family arrangement that is recognized under Hindu law. An HUF consists of all persons lineally descended from a common ancestor, including their wives and unmarried daughters. Under the Income Tax Act, an HUF is taxed as a separate entity from its members. Prof. Felix Anthonysamy M.Com, MBA, MA, B.Ed, NET, SET. Income Tax 3. Companies: A company is a separate legal entity that is registered under the Companies Act, 2013. Companies are taxed on their income at a flat rate. 4. Firms: A firm is an association of two or more individuals who come together to carry on a business. Under the Income Tax Act, a firm is taxed as a separate entity from its partners. 5. Association of Persons (AOP): An AOP is a group of two or more persons who come together for a common purpose, other than for profit. An AOP is taxed as a separate entity from its members. 6. Body of Individuals (BOI): A BOI is a group of two or more individuals who come together for a common purpose, other than for profit. A BOI is taxed as a separate entity from its members. 7. A local authority: The expression local authority means: (i) Panchayat; or (ii) Municipality; or (iii) Municipal Committee and District Board, legally entitled to, or entrusted by the Government with, the control or management of a Municipal or local funds; or 8. Artificial Juridical Person: An artificial juridical person is a legal entity that is not a natural person. These entities are taxed on their income at the same rates as individuals.  Assesse (Sec 2(7)) It means any person who is liable to pay any tax or any other sum under IT Act, 61 It includes- - Every person in respect of whom any proceeding under the Act has been taken for the assessment of: a. his income: or b. the income of any other person in respect of which he is assessable; or c. the loss sustained by him or such other person; or d. the amount of refund due to him or to such other person. - Every Person who is deemed to be assessee under any provision of this Act. (Trustee of Trust are representative assessee - Every person who is deemed to default under any provision. 'Assesseement' – Section 2(8) of Income Tax. This is inclusive definition which indicate that the term Assessment includes Reassessment in to additional to its normal meaning. Assessment means the process of determining and computing the amount of income and the Tax due to a person. An Assessment thus fixes the liability of the Assesse to pay the assessed tax on the assessed Income for the Assessment Year of the Previous Year. Prof. Felix Anthonysamy M.Com, MBA, MA, B.Ed, NET, SET. Income Tax General Tax Rates for A.Y 2023-24  Individual, HUF, AOP, BOI, Artificial Juridical Person Tax Rate A. For Individual, HUF, AOP, BOI, AJP (Resident or Non Resident) Total income upto ₹ 2,50,000 (Basic exemption Limit) Nil  ₹ 2,50,000 upto ₹ 5,00,000 5%  ₹ 5,00,000 upto ₹ 10,00,000 20%  Above ₹ 10,00,000 30% B. For Senior Citizen (Resident individual age 60 years or more in P.Y) Total income upto ₹ 3,00,000 (Basic exemption Limit) Nil  ₹ 3,00,000 upto ₹ 5,00,000 5%  ₹ 5,00,000 upto ₹ 10,00,000 20%  Above ₹ 10,00,000 30% C. For Super Senior Citizen (Resident individual age 80 years or more in P.Y) Total income upto ₹ 5,00,000 (Basic exemption Limit) Nil  ₹ 5,00,000 upto ₹ 10,00,000 20%  Above ₹ 10,00,000 30%  Circular No 28/2016 dt 27.07.2016 Any Resident Individual whose 60th/80th birthday falls on 1st April 2023 shall be treated as having completed the age of 60/80 years on 31st March 2023 i.e., P.Y 2022-23 (AY 2023-24) and hence would be eligible for the higher basic exemption limit of 3,00,000 & 5,00,000.  Surcharge for Assessee Being Individual, HUF, AOP, BOI, AJP: Condition Surcharge - % of tax on (i) Total Income Upto to ₹ 50 Lakhs Total Income NIL (ii) Total Income >₹ 50 Lakhs but upto ₹ Total Income 10% 1Cr. (iii) Total Income >₹ 1Cr. but upto ₹ 2Cr. Total Income 15% (iv) Dividend Capital gain u/s >₹ 2Cr. Dividend Capital gain u/s 15% 111A, 112A & 112 111A, 112A & 112 (v) Remaining Total Income >₹ 2Cr. but upto ₹ 5Cr. Dividend Capital gain u/s 15% (Total Income excluding 111A, 112A & 112 Dividend Capital gain u/s 111A, 112A & 112) Remaining Total Income 25% (vi) Remaining Total Income >₹ 5Cr. Dividend Capital gain u/s 15% (Total Income excluding 111A, 112A & 112 Dividend Capital gain u/s 111A, 112A & 112) Remaining Total Income 37% Prof. Felix Anthonysamy M.Com, MBA, MA, B.Ed, NET, SET. Income Tax.  In other words:  In any case, surcharge on Dividend and Capital gain u/s 111A, 112A & 112 shall not exceed 15%  Assessee will never be hit with surcharge of 25% merely because such dividend & capital gains push his total income into exceeding 2 Crores but upto 25 Crores" brackets but the remaining total income is less than 2 Crores. Assessee will be hit with surcharge of 25% on his remaining total income only if the remaining total income exceeds 2 Crores.  Likewise, Assessee will never be hit with surcharge of 37% merely because such dividend & capital gains push his total income into "exceeding 25 Crores" brackets but the remaining total income is less than 15 Crores.  Assessee will be hit with surcharge of 37% on his remaining total income only if the remaining total income exceeds 5 Crores.  For Company A. Domestic Company (1) Turnover or Gross Receipt of P.Y 2020-21 Tax Rates Upto ₹ 400 Crore 25% (2) Otherwise 30% B. Foreign Company 40% Surcharge: Domestic Co. Foreign Co. Total Income (NIT) >₹ 1 Cr. but upto ₹ 10 Cr. 7% 2% >₹ 10 Cr. 12% 5%  For Partnership Firm / LLP / Local Authority Tax Rate: 30% Surcharge: @ 12% of Tax if NIT > ₹ 1 Crore Note: In all the above cases, Health & Education Cess is applicable @ 4% of Tax (includes surcharge)  For Co-operative societies Tax Rate Total Income upto ₹ 10,000 10% Total Income > ₹ 10,000 but upto ₹ 20,000 20% Total Income > ₹ 20,000 30% Prof. Felix Anthonysamy M.Com, MBA, MA, B.Ed, NET, SET. Income Tax Deemed Income  Sec 68: Cash Credit  Sec 69: Unexplained Investments  Sec 69A: Unexplained money, asset etc.  Sec 69B: Amount of investments etc., not fully disclosed in the books of account  Sec 69C: Unexplained expenditure  Sec 69D: Amount borrowed or repaid on hundi Note: Income mentioned u/s 68 to 69D taxable @60% (+25% Surcharge+4% HECie. 78%).  Sec 115BB: Taxon winnings from lotteries, card game, horse race etc. (Refer Sec 194B/BB) - Tax Rate @ 30%  Sec 115BBE: Deemed Income u/s 68 to 69D - Tax Rate @ 60% (Surcharge 25% and HEC @ 4%) effective rate 78% Notes: 1. No basic exemption or allowance or expenditure shall be allowed to the assessee under any provision of the Income-tax Act 1961 in computing such deemed income. 2. Further, no set off of any loss shall be allowable against income brought to tax u/s 68 or 69 or 69A or 698 or 69C or 69D. Prof. Felix Anthonysamy M.Com, MBA, MA, B.Ed, NET, SET.  Income Tax  Sec 115BAC: Tax on Income of Individual & HUF (Added by FA-20 w.e.f. AY 21-22) Assessee: Individual & HUF  Tax Rate: Total Income Tax Rate Upto ₹ 2,50,000 Nil ₹ 2,50,001 to ₹ 5,00,000 5% ₹ 5,00,001 to ₹ 7,50,000 10% ₹ 7,50,001 to ₹10,00,000 15% ₹ 10,00,001 to ₹ 12,50,000 20% ₹ 12,50,001 to ₹ 15,00,000 25% >₹ 15,00,000 30%  Special Income (u/s 111A, 112, 112A etc) shall be taxable @ Special rates.  Surcharge and cess » Surcharge will be @ 10%/15%/25%/37% depending on Total Income of assessee. » Health & Education cess (HEC) shall be @4% always. Prof. Felix Anthonysamy M.Com, MBA, MA, B.Ed, NET, SET. n-gl.com