Basic Concepts under Income Tax Act 1961 Presented

Basic Concepts under Income Tax Act, 1961 Presented by CA Dr. Trupti G. Deore (M. Com, NET, SET, Chartered Accountant, Ph. D in Accountancy, BA in Values & Spiritual Education) Asst. Professor at KSKW Arts, Science & Commerce College, Nashik, Maharashtra CA Dr. Trupti G. Deore 1

Contents of Topics Components of Income Tax Law Definitions under Income Tax Act, 1961 Rates of Tax (applicable for AY 2020 -21 for Individual only) Surcharge Health & Education Cess Rebate u/s 87 A CA Dr. Trupti G. Deore 2

Components of Income Tax Law Income Tax Act, 1961 Annual Finance Act Income Tax Rules, 1962 CA Dr. Trupti G. Deore Circulars/ Notifications Legal Decisions of Courts 3

Income Tax Act, 1961 Came into force on 1 st April, 1962. Contains section 1 to 298 and XIV Schedules. Undergoes change every year brought out by Annual Finance Act passed by Parliament. CA Dr. Trupti G. Deore 4

Annual Finance Act Every year the Finance Minister of the Govt. of India introduces the Finance Bill in Parliament’s Budget Session. When the Finance Bill is passed by both the houses of the Parliament and gets the assent from the President, it becomes the Finance Act CA Dr. Trupti G. Deore 5

Circulars/ Notifications Circulars Notifications Issued by CBDT for the guidance of the officers and/or assessees Issued by Central Government to give effect to the provisions of the Act These are to deal with certain specific problems and to clarify doubts regarding the scope and meaning of certain provisions of the Act. The CBDT is also empowered to make and amend rules for the purposes of the Act by issue of notifications. CA Dr. Trupti G. Deore 6

Income Tax Rules, 1962 The CBDT (Central Board of Direct Taxes) is empowered to make rules for carrying out the purposes of the Act. For the proper administration of the Income Tax Act, 1961, the CBDT frames rules from time to time, which are called as Income Tax Rule, 1962 CA Dr. Trupti G. Deore 7

Legal Decisions of Courts These are also known as Case Laws. It is important as it is not possible for Parliament to conceive and provide for all possible issues that may arise in the implementation of any Act. Therefore, the judiciary will hear the disputes between the assessees and the department and give decisions on various issues. The Supreme Court is the Apex Court of the Country and the law laid down by the Supreme Court is the law of the land. CA Dr. Trupti G. Deore 8

Important Definitions under Income Tax Act, 1961 Section Term 2(1 A) Agricultural Income 2 (7) Assessee 2 (8) Assessment 2 (9) Assessment Year 3 Previous Year 2(31) Person 2(24) Income 2 (25 A) India CA Dr. Trupti G. Deore 9

Agricultural Income [Section 2(1 A)] Agricultural income may be received in cash or in kind. The definition covers the income of the cultivators as well as the land holders who might have rented out the lands. It may arise from any of the following three ways: CA Dr. Trupti G. Deore 10

1 st 2 nd 3 rd Rent or revenue derived from land situated in India & used for agricultural purposes. Income derived from such land by • Agriculture, or • The performance of a process ordinarily employed by a cultivator or receiver of rent in kind to render the produce fit to be taken to the market, or • The sale of such agricultural produce in the market. Income may be derived from any farm building required for agricultural operations. CA Dr. Trupti G. Deore 11

Assessee [Sec. 2(7)] “Assessee” means a person by whom any tax or any other sum of money is payable under this Act. In addition, it includes. Every person in respect of whom any proceeding under this Act has been taken for the assessment of Every person who is deemed to be an assessee under any provision of this Act - his income, 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 - The amount of refund due to him or to such other person. CA Dr. Trupti G. Deore Every person who is deemed to be an assesseein-default under any provision of this Act. 12

Assessment [ Sec. 2(8)] This is the procedure by which the income of an assessee is determined by the Assessing Officer. It may be by way of a normal assessment or by way of reassessment of an income previously assessed. CA Dr. Trupti G. Deore 13

Assessment Year & Previous Year Assessment Year Previous Year Defined u/s 2(9) Defined u/s 3 It means a period of 12 months commencing on 1 st April every year. It means the financial year immediately preceding the assessment year. It always ended on 31 st March every year, except for undisclosed sources of income. It is mostly a duration of 12 months It may have a duration of less than 12 months or even more than 12 months as the case may be. This is a year which assess the income which is earned in Previous Year. This is a year in which income is earned by person. For the current examination the Assessment Year (A. Y. ) is 2020 -21 For the current examination the Previous Year (P. Y. ) is 2019 -20 CA Dr. Trupti G. Deore 14

Person [Section 2 (31)] 1. Individual 7. Artificial Juridical Person (AJP) 6. Local Authority 2. Hindu Undivided Family (HUF) Person Includes (Seven Categories) 5. Association Of Persons (AOPs)/ Body Of Individuals (BOIs) 3. Company 4. Firm CA Dr. Trupti G. Deore 15

Income [Section 2(24)] It is inclusive definition which does not confine the scope of income but leaves room for more inclusions within the ambit of the term. At present, the term Income, includes the following items of receipts specifically as income 1. Profits and gains 2. Dividends 3. Voluntary Contributions received by a trust/ institution created 4. wholly or partly for charitable or religious purposes or by an association or institution referred to in sec. 10 (21) or by a fund or institution referred to in sec. 10(23 C)(iiiad)/(iiiae)/(iv)/(vi)/(via) or electoral trust. The value of any perquisite or profit in lieu of salary taxable u/s 17(2) and (3), respectively. CA Dr. Trupti G. Deore 16

Continue… 5. Any special allowance or benefit, other than the perquisite included above, specifically granted to the assessee to meet expenses wholly, necessarily and exclusively for the performance of the duties of an office or employment of profit. 6. Any allowance granted to the assessee to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at a place where he ordinarily resides or to compensate him for the increased cost of living. 7. Value of any benefit or perquisite, whether convertible into money or not, obtained from a company either by a director or by a person who has substantial interest in a company, or by a relative of the director or such person, and any sum paid by any such company in respect of any obligation which, but for such payment, would have been payable by the director or other person aforesaid. 8. Value of any benefit or amenity, whether convertible into money or not, obtained by a representative assessee or by any person on whose behalf such benefit is received by representative assessee and sum paid by representative assessee in respect of any obligation which hut for such payment would have been payable by the person on whose behalf representative assessee has made such payments 9. Deemed profit chargeable to tax under section 41 to section 59. CA Dr. Trupti G. Deore 17

10. Profit and gains of business or profession chargeable to tax u/s 28. 11. Any capital gain chargeable u/s 45 12. The profits and gains of any insurance business carried on by Mutual Insurance Company or by a cooperative society, computed in accordance with section 44 or any surplus taken to be such profits and gains by virtue of the provisions contained in the first schedule to the Act. 13. The profits and gains of any business of banking (including providing credit facilities) carried on by a co-operative society with its members. 14. Any winnings from lotteries, cross-word puzzles, races including horse races, card games and other games of any sort of from gambling, or betting of any form or nature whatsoever. 15. Any sum received by the assessee from his employees as contributions to any provident fund (PF) or superannuation fund or Employees State Insurance Fund (ESIC) or any other fund for the welfare of such employees. 16. Any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy. CA Dr. Trupti G. Deore 18

17. Any sum whether received or receivable in cash or in kind, under an agreement for not carrying out any activity in relation to any business or profession; or not sharing any know-how, patent, copy right, trade mark, licence, franchise, or any other business or commercial right of a similar nature, or information or technique likely to assist in the manufacture or processing of goods or provision of services, shall be chargeable to income tax under the head “Profits and gains of business or profession”. 18. Fair market value of inventory as on the date on which it is converted into, or treated as, a capital asset, determined in the prescribed manner. 19. Any consideration received for issue of shares as exceeds the fair market value of shares. 20. Any sum of money received as advance, if such sum is forfeited consequent to failure of negotiation for transfer of a capital asset. 21. Any sum of money or value of property received without consideration or for inadequate consideration by any person. 22. Any compensation or other payment, due to or received by any person, by whatever named called, in connection with termination of his employment or the modification of the term and conditions relating thereto. 23. Assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement, by whatever name called, by Central Government or a State Government or any authority or body or agency in cash or kind. CAto. Dr. Trupti the assessee is included in the G. Deore 19 definition of income.

India [Section 2(25 A)] India means The territory of India as per Article 1 of the Constitution. Its territorial waters, seabed and subsoil underlying such waters, Continental shelf, Exclusive economic zone or Any other specified maritime zone and the air space above its territory and territorial waters. (Specified maritime zone means the maritime zone as referred to in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976) CA Dr. Trupti G. Deore 20

Rates of Tax Slab rates applicable for A. Y. 202021 Individual (age less than 60 years during P. Y. ) / HUF/ AOP/ BOI/AJP Sr. No. Tax Liability/ Tax Rate 1 Total Income Up to `2, 50, 000 2 `2, 50, 001 to `5, 000 5% of amount exceeding `2, 50, 000 3 `5, 001 to `10, 000 `12, 500 + Above `10, 000 `1, 12, 500 + 4 CA Dr. Trupti G. Deore Nil 20% of amount exceeding `5, 000 30% of amount exceeding `10, 000 21

Senior Citizen (residential individual having age ≥ 60 years but <80 Years during P. Y. ) Sr. No. Tax Liability/ Tax Rate 1 Total Income Up to `3, 000 2 `3, 001 to `5, 000 5% of amount exceeding `3, 000 3 `5, 001 to `10, 000 + Above `10, 000 `1, 10, 000 + 4 Nil 20% of amount exceeding `5, 000 30% of amount exceeding `10, 000 CA Dr. Trupti G. Deore 22

Super Senior Citizen (residential individual having age ≥ 80 Years during P. Y. ) Sr. No. Tax Liability/ Tax Rate 1 Total Income Up to `5, 000 2 `5, 001 to `10, 000 20% of amount exceeding `5, 000 3 Above `10, 000 `1, 000 + Nil 30% of amount exceeding `10, 000 CA Dr. Trupti G. Deore 23

Surcharge It is a tax on income tax liability. STCG (Short Term Capital Gain) u/s 111 A LTCG (Long Term Capital Gain) u/s 112 A The tax rates for Individual are as follows: CA Dr. Trupti G. Deore 24

Sr. No. Particulars Rate of Surcharge on Income Tax 1 Where the total income (including income u/s 111 A & 112 A) > `50 lakhs but ≤ `1 crore 10% 2 Where the total income (including income u/s 111 A & 112 A) > `1 crore but ≤ `2 crore 15% 3 Where the total income (including income u/s 111 A & 112 A) > `2 crore but ≤ `5 crore 25% (income tax levied on income other than income u/s 111 A & 112 A) Rate of surcharge for income tax payable on income u/s 111 A and 112 A 15% Where the total income (including income u/s 111 A & 112 A) > `5 crore 37% (income tax levied on income other than income u/s 111 A & 112 A) Rate of surcharge for income tax payable on income u/s 111 A and 112 A 15% Where the total income (including income u/s 111 A & 112 A) > `2 crore in cases not covered under 3 & 4 above. 15% 4 5 CA Dr. Trupti G. Deore 25

“Health & Education Cess” The amount of income-tax as increased by the union surcharge (if applicable), should further be increased by an additional surcharge which is called as “Health and Education cess on income-tax”. Rate of cess is 4% on such income tax and surcharge It is levied in the case of all assessees i. e. individuals, HUF, AOPs, BOIs, Firms, local authorities, co-operative societies and companies. It is levied to fulfil the commitment of the Government to provide and finance quality health services and universalised quality basic education and secondary & higher education. CA Dr. Trupti G. Deore 26

Rebate [Section 87 A] Conditions to claim rebate u/s 87 A which provide tax relief to the individual tax payers 1. whose total income does not exceed `5, 000 and 2. such individual is resident in India for P. Y. 3. Rebate is not available in respect of tax payable @ 10% on Long-Term Capital gains taxable u/s 112 A Check points for claiming Rebate: Step-I: Amount of Income Tax payable on the total income for any A. Y. OR an amount of `12, 500 Whichever is Less CA Dr. Trupti G. Deore 27

Continue…. Step-II: Any individual having total income up to `5, 000 will not be required to pay any tax. So ultimately the rebate would be the tax payable on such income Or `12, 500 Whichever is Less Step-III: The aggregate amount of rebate u/s 87 A shall not exceed the amount of income tax on the total income of the assessee with which he is chargeable for any assessment year. CA Dr. Trupti G. Deore 28

Reference www. incometaxindia. gov. in The study materials available at ICAI modules, Books of Income Tax for AY 2020 -21, Ready Reckoner for Income Tax This presentation is just an idea about some concepts used in Income Tax, do read the ‘Income Tax Act, 1961’ for detailed explanations, if needed. CA Dr. Trupti G. Deore 29

Thank you All the Best CA Dr. Trupti G. Deore 30