An Introduction to Taxation in India

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Income Tax: Introduction

The tax statutes in India:

Income Tax Act, 1961

Income Tax Rules, 1962

Amendments made by Finance Acts

decisions of Supreme Court

decisions of respective High Court

decisions of Income Tax Appellate Tribunals

Notifications and circulars issued by Central Board of Direct Taxes (CBDT)

Assessee

2 (7) “assessee” means a person by whom any tax is payable and includes—

• A person by whom any tax or any other sum of money (including interest and penalty) is payable under the Act • every person in respect of whom any proceeding under this Act has been taken either for the assessment of the amount of his income or of the income (or loss) of any other person in respect of whom he is assessable or of the amount of refund due to him or to such other person. or • every person who is deemed to be an assessee

• every person who is deemed to be an assessee in default

Person

i) An individual
ii) A Hindu Undivided Family (HUF)
iii) A Company
iv) A Firm or Limited Liability Partnership
v) An Association of persons (AOP) or Body of Individuals (BOI) vi) A local Authority
vii) Every Artificial Judicial Person not falling under any of the above

Assessment year

- the period of twelve months commencing on the 1st day of April every year

Previous year

- the financial year immediately preceding the assessment year - in the case of a business or profession newly set up in a financial year, the previous year starts with period beginning with the date of setting up of the business or profession and ends with the said financial year

Charging of Tax

- Income of previous year chargeable to tax during assessment year - Income tax rates fixed by Finance Act
- For computing Total Income, provisions of the Act as applicable on 1st April of the relevant Assessment Year will be applied (for procedural matters, provisions of the Act will be applicable from the date of amendment)

Gross Total Income and Total Income

Total Income = GTI less deductions u/s 80C to 80U

Exemptions and deductions

• Exempt income not included in the computation of income - Exemption can not exceed the amount of income • Deduction is generally applied on income chargeable to tax – deduction could be less than, equal to or more than the amount of income - deduction may exceed income in which case the resulting figure will be taken as a loss

Heads of Income

Income from Salaries

Income from House Property

Profits and Gains of Business or Profession

Capital Gains

Income from Other Sources

The Income Tax law in India – some observations

Today the Income-tax Act, 1961, is a national disgrace. There is no other instance in Indian jurisprudence of an Act mutilated by more than 3,300 amendments in less than thirty years. . .

Tens of millions of man-hours, crammed with intelligence and knowledge of tax gatherers, taxpayers and tax advisers are squandered every year in grappling with the torrential spate of mindless amendments.

Our law reports bear witness to the fact that generally a case reaches hearing in the High Court in twenty years, and in the Supreme Court in thirty years, after the relevant assessment year. The situation is continuously aggravated by the deluge of new amendments - the indigestible verbiage; and the flood of litigation is heavier today than ever before. . .

Every government has a right to levy taxes. But no government has the right, in the process of extracting tax, to cause misery and harassment to the taxpayer and the gnawing feeling that he is made the victim of palpable injustice.

N.A.Palkhivala

Statement of Computation of Income and Taxes

|Income from Salaries | | |Income from House...
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