INCOME TAX ACT 1961
INTRODUCTION
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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
BASIS OF CHARGEOF INCOME TAX
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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.
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Tax rates are fixed by the Annual Finance Act
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Tax is charged on every person defined in sec2(31)
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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.
IMPORTANT DEFINITIONS
INCOME
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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
RULES REGARDING INCOME
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Definite source of income
Income may be earned legally or illegally
Not necessary that the income may be received regularly and
periodically
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Income should be received from outside
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Income can be in monetary or non monetary form
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Income may be temporary or permanent
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Disputed income
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Application of income vs diversification of income
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Reimbursement of expenses is not income
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Accrued but not received income is to be treated as income
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Income may be in plus or minus
GROSS TOTAL INCOME
The aggregate of income under the following heads is known as
gross total income:
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Income from salaries
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Income from House property
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Profits and gains of business or profession
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Income from capital gains
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Income from other sources
the income from each head is computed after making deductions
permissible under that head
PERSON
Person includes the following:
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An individual
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A hindu undivided family
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A company
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A firm
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An association of persons or body of individuals
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A local authority
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An artificial juridical person
ASSESSEE
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ORDINARY ASSESSEE
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DEEMED ASSESSEE
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ASSESSEE IN DEFAULT
ORDINARY ASSESSEE
An ordinary assessee means a person:
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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
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:
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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
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.
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.
PREVIOUS YEAR
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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.
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?
Taxation of PYs income in the AY: exceptions to the rule
The Pys income is taxed in the same year in the following cases:
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Income of non resident assessee from shipping business
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Income of persons leaving india
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Transfer of property to avoid tax
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On discontinuance of a business or profession
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TAX AVOIDANCE
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TAX EVASION
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TAX PLANNING