Basic Concept of Income Tax
The Government needs money to maintain law and order in the country, security of the country from foreign power and promote welfare in the country. Since our government is wedded to socialistic pattern of society it is foremost duty of the government to bring out such welfare and development programmes which will be bring the bridge between the rich and poor. All this requires mobilization of funds from source. These sources may be direct or indirect. Income tax, being a direct tax, is an important tool to achieve balanced socio-economic growth.
For bookworms
“A tax is a compulsory contribution from the person to the govt. to defray the expenses incurred in the common interest of all, without reference to special benefits conferred”—Seligman.
“A compulsory contribution of the wealth of person or body of persons for the service of the public powers”—Bastable
“Taxes are compulsory contribution made by the members of a community to the governing body of the same towards the common expenditure without any guarantee of a definite measured service in return”—The Indian Taxation Enquiry Committee
Brief History of Income Tax in India
Income Tax was introduced for the first time in 1860, by James Wilson to meet the losses incurred on account of the Military Mutiny of 1857 after this several amendments were made in it from to time to time. In 1886, a separate Income Tax Act was passed, this act was in force up to 1917, with various amendment from time to time. In 1918 a new Income Tax Act passed again which replaced in 1922 with another new Income Tax Act and this was in force till 1962 with many amendments.
The Income Tax Act 1962 applies to the whole of India, since 1962 several amendments of far-reaching nature have been made in the Income Tax Act by the union budget every year, which also contains Finance Bill, Besides this various amendments like Taxation Laws Amendments Act,1984, Direct Taxes Amendments Act,1987,Direct Taxes law (Amendment) Acts 1988 and 1989, Direct Tax Law ( Second Amendment) Act,1989 and at last The Taxation law ( Amendment) Act 1991. The amendment in the Finance Act of 1992 and 1993, are mostly based on the recommendation of Chelliah Committee Report.
Different Terminology in Income Tax:
Assessee
Income Tax Act 1961 (Act no. 43) defines 'assessee' as a person by whom any tax or any other sum of money is payable under this Act, and includes -
Every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or of the income of any other person in respect of which he is assessable, or of the loss sustained by him or by such other person, or the amount of refund due to him or to such other person;
Every person who is deemed to be an assessee under any provision of this Act;
Every person who is deemed to be an assessee in default under any provision of this Act;
Assessment year
Assessment year means the period of twelve months commencing on 1st April every year and ending on 31st March of the next year. Income of previous year of an assessee is taxed during the following assessment year at the rates prescribed by the relevant Finance Act.
Company
Section 2(17) of the act defines company. The term company includes:
any Indian company
any corporate incorporated by or under the laws of country outside India
any institution, association or body which is or was assessable or was assessed as a company for any assessment year under the 1922 Act or under the 1961 act any institution, association or body, whether incorporated or not and whether Indian or non Indian, which is declared by general or special order of the board to be a company only for such assessment year or assessment years
Convertible Foreign exchange
This mean foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973 and any rules made there under.
Foreign Exchange Asset
This mean any specified asset which the assessee has acquired, purchased with or subscribed to, in convertible foreign exchange.
Gross Total Income
Under the scheme of computation of total income under the Income Tax Act, the income falling under each head is to be computed as per the relevant provisions of the Act relating to computation of income under that head. The aggregate of income under each head is known as 'Gross Total Income'
Income
There is no specific definition of income but for statutory purposes there are certain items which are listed under the head income. These items include those heads also which normally will not be termed as income but for taxation we consider them as income. These items are included under section 2(24) of the income tax act, 1961. As per the definition in section 2(24), the term income means and includes:
profits and gains
dividends
voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes
the value of any perquisite or profit in lieu of salary taxable under clause (2) and (3) of section 17 of the act
any special allowance or benefit, other than those included above
any allowance granted to the assessee either to meet his personal expenses at the place where the duties of his office or employment of profits are ordinarily performed by him or at a place where he ordinarily resides or to compensate him for the increased cost of living
capital gains
any sum chargeable to income tax under section 28 of the income tax act
any winnings from lotteries, crossword puzzles, races, including horse races, card games and games of any sort or from gambling or betting of any form or nature whatsoever
any received as contribution to the assessee's provident fund or superannuation fund or any fund for the welfare of employees or any other fund set up under the provisions of the emplyees state insurance act
profits on sale of a licence granted under the imports (control) order, 1955 made under the imports and exports (control) act, 1947
Indian company
Indian company means a company formed and registered under the companies act, 1956. Any company formed and registered under any law relating to companies formerly in force in any part of India, other than Jammu and Kashmir and the union territories as specified or a corporation established by or under a central, state or provincial act or any institution, association or a body which is declared by the board to be company under section 2 (17) are referred as Indian company. In the case of state of Jammu and Kashmir, a company formed and registered under any law for the time being in force in the state. Similarly in case of union territories.
Investment Income
This mean any income other than dividends derived from a foreign exchange asset.
Long term Capital Gains
This mean income chargeable under the head "capital gains relating to a capiatl asset being a foreign exchange asset which is not a short term capital asset.
Manufacture
To "manufacture" is to produce new out of the existing materials.It further implies transformation in to new and different articles having a distinct name,character or use.Section2(f) of the Central Excises and Salt Act,1944 gives statutory definition for "manufacture".
Non Resident Indian (NRI)
NRI means an individual being a citizen of India or a person of Indian origin who is not a resident. A person shall be deemed to be of Indian origin if he or either of his parents or any of his grand parents was born in undivided India.
Person
The income tax is charged in respect of the total income of the previous year of every 'person'. Here the person means--
an individual : a natural human being i.e male, female minor or a person of sound or unsound mind
a Hindu undivided family (HUF)
a company :
any Indian company
any body corporate incorporated by under the laws of a country outside India
any institution, association or body whether Indian or non Indian, which is declared by general or special order of the board to be a company
any institution, association or body which is or was assessable or was assessed as a company for any assessment year under the Indian Income tax Act, 1922 or which is or was assessable or was assesses under this act as a company for any assessment year commencing on or before the 1st day of April. 1970
a firm i.e a partnership firm
an association of persons or a body of individuals whether incorporated or not
a local authority-- means a municipal committee, district board, body of port commissioners, or other authority legally entitled to or entrusted by the government with the control and management of a municipal or local fund.
every artificial, juridical person, not falling within any of the above categories.
Previous year
The Financial Year in which the income is earned is known as the previous year. Any financial year begins from 1st of April and ends on subsequent 31st March. The financial year beginning on 1st of April 2003 and ending on 31st March 2004 is the previous year for the assessment year 2004-2005.
Principal Officer
Any public body or association of persons or any body of individuals or a company or a local authority is referred as the principle officer. They include the secretary, treasurer, manager or agent of the authority, company, association or body. Also any person connected with the management or administration of the local authority, company, association or body upon which the assessing officer has served a notice of his intention of treating him as the principal officer.
Specified Asset
This includes any of the following assets-
Shares in an Indian company
debentures issued by an Indian company which is not a private company as defined in the companies act, 1956
deposits with an Indian company which is not a private company
any security of the central government
units of the unit trust of India
Such other assets as the central government may specify in this behalf by notification in the official gazette
TAX RATE FOR ASSESMENT YEAR 2010-2011
The following chart shows the Income tax rates for the year 2009-10 (Assessment year 2010-11). Let’s plan for the Income tax from now on to avoid taking home peanuts at the end of financial year thanks hefty chunk of our salary being deducted as tax. Instead we can calculate the income tax to be paid now itself and pay income tax by monthly installments.
In case of individual (other than II and III below) and HUF
i. Where the total income does not exceed Rs.1,60,000/-. NIL
ii. Where the total income exceeds Rs.1,60,000/- but does not exceed Rs.3,00,000/-. 10% of amount by which the total income exceeds Rs. 1,60,000/-
iii. Where the total income exceeds Rs.3,00,000/- but does not exceed Rs.5,00,000/-. Rs. 14,000/- + 20% of the amount by which the total income exceeds Rs.3,00,000/-.
iv. Where the total income exceeds Rs.5,00,000/-. Rs. 54,000/- + 30% of the amount by which the total income exceeds Rs.5,00,000/-.
In case of individual being a woman resident in India and below the age of 65 years at any time during the previous year:-
i. Where the total income does not exceed Rs.1,90,000/-. NIL
ii. Where total income exceeds Rs.1,90,000/- but does not exceed Rs.3,00,000/-. 10% of the amount by which the total income exceeds Rs.1,80,000/-.
iii. Where the total income exceeds Rs.3,00,000/- but does not exceed Rs.5,00,000/-. Rs. 11,000- + 20% of the amount by which the total income exceeds Rs.3,00,000/-.
iv. Where the total income exceeds Rs.5,00,000/- Rs.51,000/- + 30% of the amount by which the total income exceeds Rs.5,00,000/-.
In case of an individual resident who is of the age of 65 years or more at any time during the previous year:-
i. Where the total income does not exceed Rs.2,40,000/-. NIL
ii. Where the total income exceeds Rs.2,40,000/- but does not exceed Rs.3,00,000/- 10% of the amount by which the total income exceeds Rs.2,40,000/-.
iii. Where the total income exceeds Rs.3,00,000/- but does not exceed Rs.5,00,000/- Rs.6,000/- + 20% of the amount by which the total income exceeds Rs.3,00,000/-.
iv. Where the total income exceeds Rs.5,00,000/- Rs.46,000/- + 30% of the amount by which the total income exceeds Rs.5,00,000/-.
Surcharge: The surcharge on Income Tax for Individuals for total income exceeding Rs.10 lacs stands removed.
Education Cess: 3% of the Income-tax.
Regards,
Ajesh Ajesh Patel
For bookworms
“A tax is a compulsory contribution from the person to the govt. to defray the expenses incurred in the common interest of all, without reference to special benefits conferred”—Seligman.
“A compulsory contribution of the wealth of person or body of persons for the service of the public powers”—Bastable
“Taxes are compulsory contribution made by the members of a community to the governing body of the same towards the common expenditure without any guarantee of a definite measured service in return”—The Indian Taxation Enquiry Committee
Brief History of Income Tax in India
Income Tax was introduced for the first time in 1860, by James Wilson to meet the losses incurred on account of the Military Mutiny of 1857 after this several amendments were made in it from to time to time. In 1886, a separate Income Tax Act was passed, this act was in force up to 1917, with various amendment from time to time. In 1918 a new Income Tax Act passed again which replaced in 1922 with another new Income Tax Act and this was in force till 1962 with many amendments.
The Income Tax Act 1962 applies to the whole of India, since 1962 several amendments of far-reaching nature have been made in the Income Tax Act by the union budget every year, which also contains Finance Bill, Besides this various amendments like Taxation Laws Amendments Act,1984, Direct Taxes Amendments Act,1987,Direct Taxes law (Amendment) Acts 1988 and 1989, Direct Tax Law ( Second Amendment) Act,1989 and at last The Taxation law ( Amendment) Act 1991. The amendment in the Finance Act of 1992 and 1993, are mostly based on the recommendation of Chelliah Committee Report.
Different Terminology in Income Tax:
Assessee
Income Tax Act 1961 (Act no. 43) defines 'assessee' as a person by whom any tax or any other sum of money is payable under this Act, and includes -
Every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or of the income of any other person in respect of which he is assessable, or of the loss sustained by him or by such other person, or the amount of refund due to him or to such other person;
Every person who is deemed to be an assessee under any provision of this Act;
Every person who is deemed to be an assessee in default under any provision of this Act;
Assessment year
Assessment year means the period of twelve months commencing on 1st April every year and ending on 31st March of the next year. Income of previous year of an assessee is taxed during the following assessment year at the rates prescribed by the relevant Finance Act.
Company
Section 2(17) of the act defines company. The term company includes:
any Indian company
any corporate incorporated by or under the laws of country outside India
any institution, association or body which is or was assessable or was assessed as a company for any assessment year under the 1922 Act or under the 1961 act any institution, association or body, whether incorporated or not and whether Indian or non Indian, which is declared by general or special order of the board to be a company only for such assessment year or assessment years
Convertible Foreign exchange
This mean foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973 and any rules made there under.
Foreign Exchange Asset
This mean any specified asset which the assessee has acquired, purchased with or subscribed to, in convertible foreign exchange.
Gross Total Income
Under the scheme of computation of total income under the Income Tax Act, the income falling under each head is to be computed as per the relevant provisions of the Act relating to computation of income under that head. The aggregate of income under each head is known as 'Gross Total Income'
Income
There is no specific definition of income but for statutory purposes there are certain items which are listed under the head income. These items include those heads also which normally will not be termed as income but for taxation we consider them as income. These items are included under section 2(24) of the income tax act, 1961. As per the definition in section 2(24), the term income means and includes:
profits and gains
dividends
voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes
the value of any perquisite or profit in lieu of salary taxable under clause (2) and (3) of section 17 of the act
any special allowance or benefit, other than those included above
any allowance granted to the assessee either to meet his personal expenses at the place where the duties of his office or employment of profits are ordinarily performed by him or at a place where he ordinarily resides or to compensate him for the increased cost of living
capital gains
any sum chargeable to income tax under section 28 of the income tax act
any winnings from lotteries, crossword puzzles, races, including horse races, card games and games of any sort or from gambling or betting of any form or nature whatsoever
any received as contribution to the assessee's provident fund or superannuation fund or any fund for the welfare of employees or any other fund set up under the provisions of the emplyees state insurance act
profits on sale of a licence granted under the imports (control) order, 1955 made under the imports and exports (control) act, 1947
Indian company
Indian company means a company formed and registered under the companies act, 1956. Any company formed and registered under any law relating to companies formerly in force in any part of India, other than Jammu and Kashmir and the union territories as specified or a corporation established by or under a central, state or provincial act or any institution, association or a body which is declared by the board to be company under section 2 (17) are referred as Indian company. In the case of state of Jammu and Kashmir, a company formed and registered under any law for the time being in force in the state. Similarly in case of union territories.
Investment Income
This mean any income other than dividends derived from a foreign exchange asset.
Long term Capital Gains
This mean income chargeable under the head "capital gains relating to a capiatl asset being a foreign exchange asset which is not a short term capital asset.
Manufacture
To "manufacture" is to produce new out of the existing materials.It further implies transformation in to new and different articles having a distinct name,character or use.Section2(f) of the Central Excises and Salt Act,1944 gives statutory definition for "manufacture".
Non Resident Indian (NRI)
NRI means an individual being a citizen of India or a person of Indian origin who is not a resident. A person shall be deemed to be of Indian origin if he or either of his parents or any of his grand parents was born in undivided India.
Person
The income tax is charged in respect of the total income of the previous year of every 'person'. Here the person means--
an individual : a natural human being i.e male, female minor or a person of sound or unsound mind
a Hindu undivided family (HUF)
a company :
any Indian company
any body corporate incorporated by under the laws of a country outside India
any institution, association or body whether Indian or non Indian, which is declared by general or special order of the board to be a company
any institution, association or body which is or was assessable or was assessed as a company for any assessment year under the Indian Income tax Act, 1922 or which is or was assessable or was assesses under this act as a company for any assessment year commencing on or before the 1st day of April. 1970
a firm i.e a partnership firm
an association of persons or a body of individuals whether incorporated or not
a local authority-- means a municipal committee, district board, body of port commissioners, or other authority legally entitled to or entrusted by the government with the control and management of a municipal or local fund.
every artificial, juridical person, not falling within any of the above categories.
Previous year
The Financial Year in which the income is earned is known as the previous year. Any financial year begins from 1st of April and ends on subsequent 31st March. The financial year beginning on 1st of April 2003 and ending on 31st March 2004 is the previous year for the assessment year 2004-2005.
Principal Officer
Any public body or association of persons or any body of individuals or a company or a local authority is referred as the principle officer. They include the secretary, treasurer, manager or agent of the authority, company, association or body. Also any person connected with the management or administration of the local authority, company, association or body upon which the assessing officer has served a notice of his intention of treating him as the principal officer.
Specified Asset
This includes any of the following assets-
Shares in an Indian company
debentures issued by an Indian company which is not a private company as defined in the companies act, 1956
deposits with an Indian company which is not a private company
any security of the central government
units of the unit trust of India
Such other assets as the central government may specify in this behalf by notification in the official gazette
TAX RATE FOR ASSESMENT YEAR 2010-2011
The following chart shows the Income tax rates for the year 2009-10 (Assessment year 2010-11). Let’s plan for the Income tax from now on to avoid taking home peanuts at the end of financial year thanks hefty chunk of our salary being deducted as tax. Instead we can calculate the income tax to be paid now itself and pay income tax by monthly installments.
In case of individual (other than II and III below) and HUF
i. Where the total income does not exceed Rs.1,60,000/-. NIL
ii. Where the total income exceeds Rs.1,60,000/- but does not exceed Rs.3,00,000/-. 10% of amount by which the total income exceeds Rs. 1,60,000/-
iii. Where the total income exceeds Rs.3,00,000/- but does not exceed Rs.5,00,000/-. Rs. 14,000/- + 20% of the amount by which the total income exceeds Rs.3,00,000/-.
iv. Where the total income exceeds Rs.5,00,000/-. Rs. 54,000/- + 30% of the amount by which the total income exceeds Rs.5,00,000/-.
In case of individual being a woman resident in India and below the age of 65 years at any time during the previous year:-
i. Where the total income does not exceed Rs.1,90,000/-. NIL
ii. Where total income exceeds Rs.1,90,000/- but does not exceed Rs.3,00,000/-. 10% of the amount by which the total income exceeds Rs.1,80,000/-.
iii. Where the total income exceeds Rs.3,00,000/- but does not exceed Rs.5,00,000/-. Rs. 11,000- + 20% of the amount by which the total income exceeds Rs.3,00,000/-.
iv. Where the total income exceeds Rs.5,00,000/- Rs.51,000/- + 30% of the amount by which the total income exceeds Rs.5,00,000/-.
In case of an individual resident who is of the age of 65 years or more at any time during the previous year:-
i. Where the total income does not exceed Rs.2,40,000/-. NIL
ii. Where the total income exceeds Rs.2,40,000/- but does not exceed Rs.3,00,000/- 10% of the amount by which the total income exceeds Rs.2,40,000/-.
iii. Where the total income exceeds Rs.3,00,000/- but does not exceed Rs.5,00,000/- Rs.6,000/- + 20% of the amount by which the total income exceeds Rs.3,00,000/-.
iv. Where the total income exceeds Rs.5,00,000/- Rs.46,000/- + 30% of the amount by which the total income exceeds Rs.5,00,000/-.
Surcharge: The surcharge on Income Tax for Individuals for total income exceeding Rs.10 lacs stands removed.
Education Cess: 3% of the Income-tax.
Regards,
Ajesh Ajesh Patel
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