INCOME TAX ACT 1961

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• INCOME TAX ACT 1961

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INTRODUCTION

• Brought into force from 1.4.1962
• Applies to the whole of India including sikkim
  and Jammu Kashmir
• The Act has been amended and reamended so
  drastically that it has become very complicated
  for the administering authorities as well as for
  the tax payers
• The Government has introduced a new Direct Taxes
  Code Bill 2010 in the Parliament on 30.08.2010.
  so far it has not been passed by the parliament

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BASIS OF CHARGEOF INCOME TAX

• Income tax is an annual tax on income
• Income of previous year is taxed in the next
  following assessment year at the rates applicable
  to that assessment year.
• Tax rates are fixed by the Annual Finance Act
• Tax is charged on every person defined in
  sec2(31)
• The tax is charged on the total income of every
  person computed in accordance with the provisions
  of this act
• Income tax is to be deducted at source or paid in
  advance as prescribed under the provisions of the
  act.

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IMPORTANT DEFINITIONS

• INCOME
• Income tax Act has not defined the term income.
  It is an inclusive definition
• Income generally includes the revenue receipts
  from outside
• There are some important rules regarding income
  which are discussed as follows

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z

• RULES REGARDING INCOME
• Definite source of income
• Income may be earned legally or illegally
• Not necessary that the income may be received
  regularly and periodically
• Income should be received from outside
• Income can be in monetary or non monetary form
• Income may be temporary or permanent
• Disputed income
• Application of income vs diversification of
  income
• Reimbursement of expenses is not income
• Accrued but not received income is to be treated
  as income
• Income may be in plus or minus

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GROSS TOTAL INCOME

• The aggregate of income under the following heads
  is known as gross total income
• Income from salaries
• Income from House property
• Profits and gains of business or profession
• Income from capital gains
• Income from other sources
• the income from each head is computed after
  making deductions permissible under that head

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PERSON

• Person includes the following
• An individual
• A hindu undivided family
• A company
• A firm
• An association of persons or body of individuals
• A local authority
• An artificial juridical person

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ASSESSEE

• ORDINARY ASSESSEE
• DEEMED ASSESSEE
• ASSESSEE IN DEFAULT

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ORDINARY ASSESSEE

• An ordinary assessee means a person
• Who is liable to pay any tax or
• Who is liable to pay any other money under this
  act e.g. interest, penalty etc or
• In respect of whom any proceedings under the act
  have been taken for the assessment of his income
  or
• In respect of whom any proceeding under the act
  has been taken for the assessment of the loss
  sustained by him or
• In respect of whom any proceeding under the act
  has been taken for the refund due to him

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DEEMED ASSESSEE

• A person who is liable to pay tax on the income
  of some other person is called deemed or
  representative assessee. For example
• After the death of a person his legal
  representative will be treated as his deemed
  assessee
• A person representing a foreigner, minor or
  person of unsound mind will be treated as an
  assessee for the income of such foreigner, minor
  or person of unsound mind

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ASSESSEE IN DEFAULT

• When a person is responsible for fulfilling an
  obligation under the income tax act and he fails
  to do so , he is called an assessee in default.
  For example
• Every DDO has a legal obligation to deduct the
  tax at source from the income of the people
  working under him and to deposit the amount in
  the Government treasury. If he fails to deduct
  the tax or after deducting it fails to deposit it
  in Government treasury, he will be treated as
  assesee in default under the act and liable to
  prescribed punishment.

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ASSESSMENT YEAR

• Assessment year means a period of 12 months
  commencing on the first day of April every year
  and ending on 31st March of the next year. An
  assessee is liable to pay tax and file the return
  of income of the previous year in the following
  financial year( assessment year)
• For the purposes of the students the assessment
  year will be 2012-13.

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PREVIOUS YEAR

• Generally speaking previous year is the financial
  year preceding the assessment year.
• The financial year ending on 31st March will be
  the uniform previous year for all the assessees
  and for all sources of income
• For a newly set up business or for a newly
  created source of income the P.Y will begin from
  the date of starting of business or from the date
  of coming into existence of the new source of
  income to the end of the said financial year. In
  such situation the first PY may be less than 12
  months.
• A financial year is both a previous year as well
  as an assessment year.

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EXAMPLES

• An assessee commences his business on
• 1.07.2011,
• 1.10.2011,
• 1.01.2012
• In each case what will be his AY and what period
  will be treated as the PY for the concerned
  assessment year?

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Taxation of PYs income in the AY exceptions to
the rule

• The Pys income is taxed in the same year in the
  following cases
• Income of non resident assessee from shipping
  business
• Income of persons leaving india
• Transfer of property to avoid tax
• On discontinuance of a business or profession

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• TAX AVOIDANCE
• TAX EVASION
• TAX PLANNING