INCOME TAX FOR STUDENTS-1
- BY CA SUDHIR HALAKHANDI
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IMPORTANT DEFINITIONS UNDER THE INCOME TAX ACT, 1961
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Assessee(Section 2(7):- Assessee means a person by whom any tax or any other sum of money is payable under this Actincludes:-
(a). Every person in respect of whom any proceedings under this Act has been taken for the assessment of his income of assessment of fringe benefits or the income of any other person in respect of which he is assessable, or the loss sustained by him or by such other person, or of the amount of refund due to him or to such other person.
(b). every person who is deemed to be an assessee under any other provision of this Act.
(c). every person who is deemed to be an assessee in default under any provision of this Act.
Assessee is the very important term under the income tax Act and whole the taxation Act is depend on the assessee because assessee is the person who is contributing the money to the Government in the form of Tax. See if there is no assessee then what is the need of formulating the income tax Act and what is the need for you and all of us to study this subject.
Here the assessee means and includes the persons who are paying or liable to pay tax, interest or penalty to the Government. The other persons who are not liable to pay any sum to the government as such but against whom any proceeding under the income tax is taken or persons who are in default of following any provisions of income tax Act or the persons who is eligible for any refund from the department.
Here see the person who has defaulted in deducting the Tax while making payment to other person then he will be an assessee in default though he has nothing to pay to the Government as income Tax.
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Person (Section 2(31):- Person includes- (i). An Individual, (ii). A Hindu Undivided Family (iii). A Company (iv). A firm (v). An association of persons or a body of Individuals, whether incorporated or not, (vi). A local authority (vii). Every artificial juridical person, not falling within any of the preceding sub-clause.
Explanation: - For the purpose of this clause, an association of persons or body of individuals or a local authority or an artificial juridical person shall be deemed to be a person, whether or not such person or body or authority or juridical person was formed or established or incorporated with the object of deriving income, profits or gains.
Let us have a look at who is included in which category of persons:-
(i). An Individual- Mr. Anil kumar Sharma. Mrs. Savita Chouhan, Mr. Ajit goyal, Miss Gayatri sharma. Individual means natural person i.e. human being. Mr. and Mrs. Sharma i.e. husband and wife are two separate persons in the eyes of IT Laws. In case of individual, relation does not have any meaning every body is a separate person.
(ii). Hindu undivided Family: - HUF is also a separate entity and is governed by Hindu law. IT laws have not defined the HUF but it is the creation of Hindu law and is applicable only on the persons covered by the Hindu law. In the eye of IT laws HUF has the separate status, it can have separate income and it is assessed separately and have nothing to do with the individual income or status of its members. Let us have a look here- Mr. Anil Sharma is an Individual person. He is a Doctor. His wife Mrs. Anjali Sharma is a teacher and their son Rohit sharma is an engineer and their Daughter Miss Kavita sharma a medical student. Now in this family there are five separate persons in the eyes of IT laws. Individuals- Mr. Anil sharma, Mrs. Anjali Sharma and Mr. Rohit sharma and Miss Kavita sharma.These are four Natural persons i.e. human beings and these four have to pay tax on their individual income. Now this family i.e. Hindu undivided family comprising of Mr. Anil sharma, Mrs. Anjali Sharma and Mr. Rohit sharma and Miss Kavita sharma is a separate person by the fiction of law i.e. though it is not a natural person but since it has been provided in the law ,this family has the separate status as person.
Here see what an HUF is in the eyes of Hindu laws- A family which consists of all males lineally descended from a common ancestor and includes their wives and unmarried daughters.
Here see this status is available only to the families which are governed by the Hindu laws. One can not have a MUF i.e. Muslim undivided family and CUF i.e. Christian undivided family in the eyes of IT laws.
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(iii).Firm:- There may be a partnership firm or proprietorship firm but in the eyes of IT laws Firm means a Partnership firm. Here in income Tax Act, Partnership, Partner and partnership firm have the same meaning a assigned to them in the Indian Partnership Act. So here note that whenever a Firm is referred with reference to Income Tax then it is always a partnership firm.
What is partnership: - A partnership is the relation between persons who have agreed to share the profits of the business carried on by all or any of them acting for all.
The persons who have entered into the partnership are called individuallyPartnersand jointly Firm.
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(iv). Company:- Though in the common language the company is a company incorporated under the companies Act,but Section 2(17) of the income tax Act, has defined the companies in its own language and according to it Company means (a). An Indian Company (b). Any body corporate incorporated by or under the laws of a country outside India (c). Any institution or bodywhich is or was assessable or was assessed as a company under the Income tax Act, 1922 or which is or was assessable or was assessed under this Act, as a company for any assessment year commencing on or before the 1st. Day of April 1970, or (d). Any institution or body (Indian or out side) which is declared by the Board to be a company.
Example: - (i). Shree Ram Foods (Pvt.) Limited (ii). Reliance Industries Limited (iii). Dabur India Limited.
- You might have heard a word corporate sector and this corporate sector is contributing most of the Tax to the Government of India. All the company assesses are called Corporate assesses.
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(v).An association of persons or a body of Individuals, whether incorporated or not:- When more than one persons engaged themselves in a activity without forming a partnership , they will be called Association of persons or body of Individuals.
Example:- Five persons have formed a group of singers and performed in different cities .They earned Rs. 25 lakhs in a financial year. Since they have not formed a partnership hence they will be called Association of persons.
Some years back the Cricket Board of India, Pakistan cricket Board and shri Lanka Cricket board jointly organized World cup cricket and in that case they were working as Association of persons.
Here see there is a basic difference between these two terms Association of persons means a association of persons and it may include artificial persons like companies also but in case of Body of individuals only Natural persons can form part of it.
The tax treatment under the income tax Act, for both Association of persons and body of individuals is the same.
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(vi). Local Authority: - Krishi Upaj mandi Samiti, Municipal council, Urban improvement trust.
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(vii). Every artificial persons, not falling within any of the categories above- Example- Bar council of India, Chamber of commerce, an idol or deity.
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PROFIT MOTIVE NOT MANDATORY
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It may be noted here that the AOP/BOI/LA/AJP i.e. Association of persons, Body of Individuals/ Local authorities/Artificial Judicial person will be treated as persons irrespective the fact that they are formed for the purpose of earning profit or not.
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SOME MORE DIFINITIONS
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ASSESSMENT YEAR: - Section 2(9):- Assessment year means the period of twelve months commencing on 1st. day of April every year.
PREVIOUS YEAR: - Section 2(34):- Previous year means the previous year asdefined in Section 3.
SECTION 3:- For the purpose of this Act, previous year means the financial year immediately preceding the assessment year.
Let us see here the concept of assessment year and previous year as given in the Income Tax act and their importance while taxing an assessee. First of all see that the income of previous year is taxable in the assessment year and assessment year is period of 12 months commencing from 1st. Day of April.
Example: - Assessment year 2008-09 is the period from 1-04-2008 to 31-03-2009. Now the Section 3 of the Act has defined Previous year means Financial year immediately preceding the assessment year hence for the assessment year 2008-09 the previous year is the financial year 2007-08 i.e. the period 1-04-2007 to 31-03-2008. The income for the Financial year 2007-08 i.e. 1-04-2007 to 31-03-2008 which is called previous year also is taxed in the assessment year 2008-09.
Here see financial year means a period from 1st April to 31st. March.
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INCOME OF PREVIOUS YEAR IS TAXED IN ASSESSMENT YEAR
WHY?
The income of a previous year is taxed in the assessment year. Why? This is very common question and let us tries to find out its answer in a very simple way. Suppose you have gone to a shopping mall and purchased 10 articles. How many times you to pay the bill? Only one time i.e. after completing your shopping. A bill can not be raised on your shopping of each article. This is system to billing you when you finished your shopping. This is universal law of billing a person. See when you take your meal to a restaurant; you will get your bill after finishing the meal. While billing somebody a finishing point is required. On the same footing Your income is taxed after a finishing point and here 31st. March is the finishing point hence your income up to 31st. March is taxed in a year commencing from the next following day i.e. from 1st. April and that is the assessment year for your previous year.
EXCEPTIONS OF THE RULE
Income of previous year is taxable in the assessment year. This is the general law and like any other General law it has some exceptions also and these exceptions are given to protect the interest of revenue and better tax collection:-
(i). Income of shipping business of Non-resident:-
If the assessee is (i) a non resident (ii). He owns a ship or ship is chartered by him. (iii). The ship carries passengers, livestock, mail or Goods shipped at a port in India and if all the three conditions are satisfied then the 7.5% of the gross receipts of the ship shall be treated as income of the assessee and he has to pay tax on it in the same year.In this case of income of assessment year is taxable in the assessment year itself. Section 172
(ii). Income of persons who leaves India Permanently :-If the assessee in the opinion of the assessing officer may leave India during the current assessment year or shortly after end of the current assessment year with a intention of not returning India, the assessing officer may tax the income of the assessment year in the assessment year itself. This is mandatory provision. Section 174
(iii).Income of bodies formed for short duration:-If it appears to the assessing officer that the Association of persons or body of individual formed in the same assement year is dissolved in the same assessment year then he may proceed to tax the income of such BOI/AOP in the same assessment year. This is mandatory provision. Section 174A
(iv). Persons Likely to transfer property to avoid tax:- If it appears to the assessing officer that the assessee with a view to avoid tax , likely to dispose, transfer or otherwise part with the movable or immovable property then he may assess and tax the income of such assessee in the same assessment year, This is mandatory provision.- section 175.
(iv).Income of a discontinued business:-If a business is discontinues in any assessment year then at the discretion of the Assessing officer the income of such business is taxable in the assessment year itself.- Section 176
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Financial Year 1-04-2007 to 31-03-2008
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This is called previous year 2007-08 and the income earned in this year is taxable in the financial year next following it i.e. assessment year 2008-09.The income of previous year 2006-07 is taxable in this year i.e. in the assessment year 2007-08.
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One person has earned salary Rs. 24000.00 per month in the calendar year 2007 and 36000.00 in the calendar year 2008. Calculate his taxable income for the assessment year 2008-09.
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First of all calculate the Months covered in the assessment year 2008-09 Since the income of previous year 2007-08 is taxable in the assessment year 2008-09 the period is 1-04-2007 to 31-03-2008 and for first nine months the salary is 24000x9=216000.00 and for the rest of three months the salary is 36000x3= 108000.00 i.e. total Rs.324000.00 and this is the income of the previous year 2007-08(1-04-2007 to 31-03-2008) and it is taxable in the Assessment year 2008-09.
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HEADS OF INCOME
Section 14
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HEADS
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SECTIONS
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AMOUNT
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1.Salary
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15 to 17
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2.Income from House property
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22 to 27
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3.Profits and gains from business and profession
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28 to 44
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4.Capital Gain
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45 to 55A
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5.Income from other sources
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56 to 59
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GROSS TOTAL INCOME
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Less:- Deductions under Chapter VIA
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80C to 80U
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TOTAL INCOME OR NET INCOME (Rounded off to nearest Rs.10* as per Section 288A.
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Tax on Total Income
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Less:- Rebate (Security transaction Tax- Not available for assessment year 2009-10 onwards)
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88E
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Net Balance Tax payable
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Add:- Surcharge (Wherever applicable)
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Total Tax and Surcharge
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Add: - 3% EC (i.e. 2% Education Cess and 1 %( Secondary and highereducation cess)
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Less:- Rebate from Tax-Section 86(Tax on income on share ofAOP/BOI) Section 89 (Salary etc. received in arrears or advance), Section 91 (Tax paid in foreign countries on income accrued or aroused outside India, where no double taxation agreement is made)
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86, 89, 90 and 91
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Net Tax Liability
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Less: - (i). TDS/TCS (ii). Advance Tax
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Balance payable on self Assesseement
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LESS: - Self Assessment tax paid
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Balance
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NIL
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ROUNDED OFF OF INCOME
288A. The amount of total income computed in accordance with the foregoing provisions of this Act shall be rounded off to the nearest multiple of ten rupees and for this purpose any part of a rupee consisting of paisa shall be ignored and thereafter if such amount is not a multiple of ten, then, if the last figure in that amount is five or more, the amount shall be increased to the next higher amount which is a multiple of ten and if the last figure is less than five, the amount shall be reduced to the next lower amount which is a multiple of ten; and the amount so rounded off shall be deemed to be the total income of the assessee for the purposes of this Act.
EXAMPLE:- Total Income 230402.75= 230402.00= 203400.00
Total Income 250508.65= 250508.00= 250510.00
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ROUNDED OFF OF TAX
288B. Any amount payable, and the amount of refund due, under the provisions of this Act shall be rounded off to the nearest multiple of ten rupees and for this purpose any part of a rupee consisting of paise shall be ignored and thereafter if such amount is not a multiple of ten, then, if the last figure in that amount is five or more, the amount shall be increased to the next higher amount which is a multiple of ten and if the last figure is less than five, the amount shall be reduced to the next lower amount which is a multiple of ten.
EXAMPLE:- Tax payable- 10703.40 =10703.00=10700.00
Tax payable- 11717.80=11717.00= 11720.00
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END
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CHAPTER-II
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Todays question
Who is not the part of Amitabh Bachchan HUF-
(i). Smt. Jaya
(ii). Mr. Abhishek
(iii). Mrs.Shewta
(iv). Mrs. Eshvarya .
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HEADS OF INCOME
Section 14
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HEADS
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SECTIONS
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AMOUNT
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1.Salary
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15 to 17
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2.Income from House property
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22 to 27
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3.Profits and gains from business and profession
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28 to 44
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4.Capital Gain
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45 to 55A
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5.Income from other sources
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56 to 59
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GROSS TOTAL INCOME
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Less:- Deductions under Chapter VIA
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80C to 80U
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TOTAL INCOME OR NET INCOME (Rounded off to nearest Rs.10* as per Section 288A.
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Tax on Total Income
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Less:- Rebate (Security transaction Tax- Not available for assessment year 2009-10 onwards)
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88E
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Net Balance Tax payable
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Add:- Surcharge (Wherever applicable)
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Total Tax and Surcharge
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Add: - 3% EC (i.e. 2% Education Cess and 1 %( Secondary and highereducation cess)
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Less:- Rebate from Tax-Section 86(Tax on income on share ofAOP/BOI) Section 89 (Salary etc. received in arrears or advance), Section 91 (Tax paid in foreign countries on income accrued or aroused outside India, where no double taxation agreement is made)
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86, 89, 90 and 91
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Net Tax Liability
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Less: - (i). TDS/TCS (ii). Advance Tax
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Balance payable on self Assesseement
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LESS: - Self Assessment tax paid
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Balance
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NIL
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ROUNDED OFF OF INCOME
288A. The amount of total income computed in accordance with the foregoing provisions of this Act shall be rounded off to the nearest multiple of ten rupees and for this purpose any part of a rupee consisting of paisa shall be ignored and thereafter if such amount is not a multiple of ten, then, if the last figure in that amount is five or more, the amount shall be increased to the next higher amount which is a multiple of ten and if the last figure is less than five, the amount shall be reduced to the next lower amount which is a multiple of ten; and the amount so rounded off shall be deemed to be the total income of the assessee for the purposes of this Act.
EXAMPLE:- Total Income 230402.75= 230402.00= 203400.00
Total Income 250508.65= 250508.00= 250510.00
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ROUNDED OFF OF TAX
288B. Any amount payable, and the amount of refund due, under the provisions of this Act shall be rounded off to the nearest multiple of ten rupees and for this purpose any part of a rupee consisting of paise shall be ignored and thereafter if such amount is not a multiple of ten, then, if the last figure in that amount is five or more, the amount shall be increased to the next higher amount which is a multiple of ten and if the last figure is less than five, the amount shall be reduced to the next lower amount which is a multiple of ten.
EXAMPLE:- Tax payable- 10703.40 =10703.00=10700.00
Tax payable- 11717.80=11717.00= 11720.00
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CHARGE OF TAX
SECTION 4
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1. Income tax is an annual Tax.
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2. Income of the previous year is assessed to tax in the assessment year at the rates applicable for that assessment year.
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3. Rate of Tax for an assessment year is fixed by the Finance Act every year and not by the income tax Act. If on a particular 1st. April of any assessment yearthe Finance Act has not got the assent of the president of India then for that assessment year the rates as proposed in the Finance Bill or the rates applicable to immediately precedingassessment year , whichever is beneficialto the assessee will apply until the new provision become effective..
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4. Tax is charged on a person and on his total income.
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5. Provisions which are applicable on 1st. April will apply for computing the and if any amendment is made on 2nd day of April onwards that will have no bearing on the Computation of Income of the assessee. This law is applicable only for the computation of total income and for other purposes the amendment will taken place from the date of its enactment.
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SCOPE OF TOTAL INCOME
SECTION 5
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RESIDENTIAL STATUS OF THE ASSESSEE
SECTION 6
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INDIVIDUAL AND HUF
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OTHER ASSESSEE- FIRM, COMPANY, AOP,BOI AND EVERY OTHER PERSON
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1.Resident and ordinary resident in India
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1.Resident in India
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2. Resident but not ordinary resident in India
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2. Non resident in India
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3. Non- resident in India
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INDIVIDUAL
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Resident in India
BASIC CONDITIONS
(One of the two conditions)
If at least one of the two basic conditions are satisfied then the person can be said to be a Resident in India:-
(i). He is in India for a period of 182 days or more in a previous year
OR
(ii). He is in India for a period of 60 days or more during the previous year and 365 days or more during the 4 years immediately preceding the previous year*.
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* The second condition is not applicable to the following persons:-
(Exceptions for Second condition)
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1. Indian citizen who leaves India during the previous year for the purpose of employment outside India.
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2. India citizen who leaves India during the previous year as a member of crew of an Indian ship.
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3. Indian citizen or a person of Indian origin who comes on a visit to India during the previous year.*
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- A person of Indian origin: - He, or either of his parents (Mother or Father) or any of his grand parents (Nana or Nani or Dada or Dadi) was born in undivided India.
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Resident but ordinary resident
ADDITIONAL CONDITIONS
(Both the conditions are mandatory)
(i). He is resident in India for at least 2 out of the 10 Previous years(i.e. He must fulfill one of the two basic conditions in at least two previous years out of the 10 previous years immediately preceding the previous year under consideration)
AND
(ii).He has been in India for a period of 730 Days or more during the 7 years immediately preceding the relevant previous year.
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HOW TO BECOME A ORDINARY RESIDENT
One Basic Condition+ Two Additional Conditions
HOW TO BECOME A RESIDENT BUT NOT ORDINARY REDENT
One basic condition and not fulfilling the both the Additional conditions
A NON RESIDENT
Not fulfilling any of the Basic conditions(If a person is not fulfilling any of the Basic conditions then the Additional conditions are immaterial for him)
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HOW TO CALCULATE THE DAYS OF STAY IN INDIA
(i). Need not to be Continuous stay
(ii). Need not to stay at a same place
(iii). Where a person is in India for part of a day then calculation will be based on 24 hours a day basis.
(iv). If data of stay on hourly basis is not available then the day he enters India and the day he leaves India both will be taken into account.
(v). When a person stays in the Yatch in Indian territorial water then his stay will be counted in India.
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RESIDENTIAL STATUS FOR OTHER PERSONS
(Including Individual in Tabular form)
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PERSON
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ORDINARY RESIDENT
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NOT- ORDINARY RESIDENT
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NON-RESIDENT
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Individual
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If satisfied at least one basic condition (i.e. any one of the two basic conditions)
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Both the additional conditions
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If he satisfied at least one basic condition(i.e. any one of the basic conditions)
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Any one of the additional condition is not satisfied
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None of the basic conditions is satisfied
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HUF
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Control and management of its affairs is wholly or partly in India
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Both the additional conditions are satisfied by the Karta of HUF
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Control and management of its affairs is wholly or partly in side India
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Any one of the additional conditions is not satisfied by the Karta of HUF
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Control and management wholly outside India
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COMPANY
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(i). Indian company
(ii). Other than Indian company- if the control and management is situated wholly in India
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N.A.
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Other than Indian Company: - If control and management is wholly or partly situated outside India.
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FIRM/AOP/BOI/LOCAL AUTORITY/ARTIFICILA JUDICIAL PERSON/ANY OTHER ASSESSEE
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If control and management is wholly or partly in India
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N.A.
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Control and management wholly outside India.
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END
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