SHRI MAHILA SEWA SAHAKARI BANK LTD
FINANCIAL LITERACY PROGRAMME
CA Sonalee Shah
Shri Mahila Sewa Sahakari Bank Ltd.
TAXATION MODULE What is tax? Why tax is levied? In Indian economy, the Government plays crucial role by making heavy investments/expenditure on core areas like heavy industries, infrastructure, defence, internal security, education, poverty alleviation, employment generation, health etc. For this purpose, the Government raises funds by levying various taxes‐ direct and indirect, other receipts and also borrows from the market. Different types of tax: For the above mentioned purpose, Government levies different types of taxes; which are broadly divided into two main categories: ‐ Direct tax ‐ Indirect tax Direct Tax: Direct taxes includes income tax, wealth tax etc. But amongst all, income tax assumes greater significance. Meaning of income tax: Income tax means the tax levied on income of the persons. What is important here is to understand the meaning of ‘persons’ and ‘income’: Persons: Following are the persons who are liable to pay income tax: 1. Individuals 2. Association of persons 3. Societies and charitable/religious trusts, 4. Hindu Undivided Family 5. Co‐operative societies 6. Partnership firms Income: The term ‘income’ is of greater significance in relation to income tax. It includes various sources of income viz: ‐ Salary income ‐ Income from business/profession ‐ Interest income etc. Thus, the thing to be noted is that, only revenue incomes are levied to income tax. Capital receipts are not levied to the same. To explain: Diff. b/w revenue receipts & capital receipts Revenue receipts: Revenue receipts are receipts that keep on accruing from time to time. Capital receipts: Capital receipts are those receipts which are generally one time in nature, and not accruing from time to time generally. Indirect tax: Indirect tax means the tax levied by the government on goods and services. Shri Mahila Sewa Sahakari Bank Ltd. Page 2
TAXATION MODULE We will consider Direct Tax portion first in this module: IMP NOTE: Whenever we talk about year for the purpose of Income Tax; we always consider financial year. i.e year for Income tax purpose commences from 1st April and ends on 31st March. When liability to pay income tax arises? • Income tax liability arises for the following persons if their income exceeds the basic exemption limit: ‐ Individuals, ‐ HUF ‐ Association of persons (where individual shares of members are known) ‐ Societies and religious/charitable trust These persons become liable to income tax if their income in the financial year exceeds the following limits: For individual males & females: Rs. 2,00,000 For senior citizens of and above 60 years: Rs. 2,50,000 For very senior citizens of and above 80 years: Rs. 5,00,000 Lets take this understanding with the help of few examples: 1. Kananbhai, aged 42, has his total income which includes profits from his business as well as his interest income during the financial year 2012‐13: Rs. 1,75,000. Calculate the tax consequences. Soln.: for FY 2012‐13; male and female below 60 years of age; income upto Rs. 200000 is exempt. So in the given case, kananbhai’s income is 175000 which is below exemption limit, therefore he would not be liable to tax. 2. In the above case; if Kananbhai’s income during FY 12‐13 is Rs. 220000; calculate the tax consequences. Soln.: Now, in this case total income of kananbhai exceeds basic exemption limit of Rs. 200000; therefore he will be liable to tax. The manner of how to calculate tax in discussed below separately. 3. Pannaben, aged 35, has her total income which includes profits from her business as well as bank FD interest income during the ...