1
Income Tax (A.Y. 2011-12) 12)
What is a Finance Bill? a) The Finance Bill incorporates all the financial proposals of the Government for the following year. b) It is ordinarily introduced in the Lok Sabha every year, immediately after the Budget is presented. c) This Bill has to be considered and passed by the Parliament and assented to by the President within 75 days after its introduction. ti d) This Bill is classified as a Money Bill. 3
BASIC TAX FRAME WORK : Section 4 Charging Section(Total 298 sections) Income Tax Act 1961 has been divided into Chapters I to XXIII and has XIV schedules hdl Income chargeable at rates prescribed by Finance Act. The duration is counted for each financial year i.e From 1 st April to 31 st March Rate of Tax for an assessment year is fixed by the Finance Act every year and not by the income tax Act. If on a particular 1 st. April of any assessment year the Finance Act has not got the assent of the president of India then for that assessment year the rates as proposed in the Finance Bill or the rates applicable to immediately preceding assessment year, whichever is beneficial to the assessee will apply until the new provision become effective..
COMPONENTS OF INCOME TAX LAW The law governing such tax, its levy and its collection: Is specified in Act called Income Tax Act 1961 Is implemented according to the rules laid liddown in the Income Tax Rules 1962. Is administered through circulars issued by the highest authority of Income tax Central Board of Direct Taxes Is interpreted by the judgment of cases, which are heard and decided by Supreme Court or High Court. So we can say that components of income tax law are: Income Tax Act 1961. Annual Finance Acts Income Tax Rules 1962 Circulars and Notifications Legal Decisions of Courts 5
Based on their character definitions are generally of two types (i) inclusive i - i.e. providing what all is covered by specification while leaving the scope open to others also to be covered within the ambit of the provision, (ii) exclusive (or 'means' definition) - i.e. those providing an exhaustive meaning to the term and no other meaning is permissible. Bharat Cooperative Bank (Mumbai) Ltd. v. Employees Union (2007) 4 SCC 685 Therefore, the use of the word means followed by the word includes in the definition of banking company in Section 2(bb) of the ID Act is clearly indicative of the legislative intent to make the definition exhaustive and would cover only those banking companies which fal within the purview of the definition and no other. 6
Charge of Income Tax Income tax is charged in assessment year at rates specified by the Finance Act applicable on 1 st April of the relevant assessment year. It is charged on the total income of every person for the previous year. Total Income is to be computed as per the provisions of the Act. Income tax is to be deducted at source or paid in advance wherever required under the provision of the Act. 7
India means the territory of India as referred to in Article 1 of the Constitution, its territorial waters,, seabed and subsoil underlying such waters, continental shelf, exclusive economic zone or any other maritime zone as referred to in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other maritime Zones Act, 1976 and the air space above its territory and territorial waters 8
INTRODUCTION The Factors Affecting the Tax Liability of an Individual in India are: His Residential Status Place of accrual or receipt of income. Meaning of India
Important Definitions 1. Person u/s 2(31) includes, i. An Individual, ii. Hindu Undivided id d Family (HUF), iii. ACompany, iv. A Firm, v. An Association of Persons(AOP) or Body of Individuals (BOI), vi. A Local Authority, vii. Every other Artificial Juridical Person The forth character of the PAN must be one of the following, depending on the type of assesse: C - Company P - Person H HUF (Hindu Undivided Family) F Firm A Association of Persons (AOP) T AOP (Trust) B Body of Individuals (BOI) L Local Authority J Artificial Juridical Person G Govt 10
EXAMPLE 1: Classification of following persons into various categories: Mr. Pankaj will be regarded as an Individual. RIL. Ltd will be regarded as a Company. Joint family of Mr. PG ; Mrs. PG; their one daughter shall be regarded as HUF. M/S DBA shall be regarded a partnership firm with 3 partners named Mr. D; Mr. B; Mr. A. Pankaj housing co-operative society shall be regarded as AOP. Bar council of a court shall hllbe regarded ddas AOP. Mr. A and Mr. B are the sons of Mr. J. After the death of Mr. J, his two sons are carrying on his business without entering into a partnership; this relationship between Mr. A and Mr. B shall be regarded as AOP/BOI. Delhi University shall be regarded as artificial juridical person.
Contd 2. Assessment Year u/s 2(9) means, the period of 12 months commencing on the 1 st April every year. It is the year (just after previous year) in which income is earned is charged to tax. The current Assessment is 2011 2012. 3. Previous Year u/s 2(34) means, the year in which income is earned. 12
Previous year in case of a continuing business:- It is the financial year preceding the assessment year. As such of the assessment year 2006-07, the previous year for a continuing business is 2005-06 i.e. 1-4-2005 to 31-3-2006. In case of newly set up business:- The previous year in case of a new started business shall be the period between commencement of business and 31 st March next following e.g. in case of a newly started business commencing its operations on Diwali 2005, the previous year in relation to assessment year 2006-07 shall be period between Diwali 2005 to 31 st March 2006. In case of newly created source of income:- In such case the previous year shall be period between the day on which such source comes into existence and 31 st March next following. 13
Contd 4. Gross Total Income (G.T.I) : The aggregateincome under the 5 heads of income (viz. Salary, House Property, Business or Profession, Capital Gains & Other Sources) is termed as Gross Total Income. 5. Total Income (T.I) : Total Income of assessee is gross total income as reduced by the amount permissible as deduction under sections 80C to 80U. Index 14
15
RATES OF INCOME TAX 1. In case of every Individual/ HUF/ AOP/BOI artificial juridical Person. INCOME (A.Y. 2011 12) 12) Up to 160000 TAX RATE NIL Next 340000 10% Next 300000 20% Above 800000 30% 16
Contd 2. In case of resident women below 65 years of age. INCOME (A.Y. 2011 12) 12) TAX RATE Up to 190000 NIL Next 310000 10% Next 300000 20% Above 800000 30% 17
Contd 3. In case of resident senior citizen i.e. age of 65 years or above INCOME (A.Y.2011 2011 12) 12) TAX RATE Up to 225000 NIL Next 275000 10% Next 300000 20% Above 800000 30% 18
Contd PERSONS TAX RATE FIRMS 30% DOMESTIC COMPANY 30% FOREIGN COMPANY 40% 19
Surcharge & Cess PERSON RATE OF SURCHARGE Firm Domestic Company 10%/7.5% of tax liability, if Income exceeds Rs. 1 Crore 10%/7.5% of tax liability, if Income exceeds Rs. 1 Crore Foreign company 2.5% of tax liability, if Income exceeds Rs. 1 Crore Co operative operative Society Local Authority N.A. N.A. Education Cess and Secondary &Higher Education Cess is applicable on every person @ 2%& 1% respectively on tax liability and surcharge applicable, if any. 20
HEADS OF INCOME Section 14 HEADS SECTIONS AMOUNT 1.Salary 15 to 17 2.Income from House property 22 to 27 3.Profits and gains from business and profession 28 to 44 4.Capital Gain 45 to 55A 5.Income from other sources 56 to 59 GROSS TOTAL INCOME 21
Less:- Deductions under Chapter VIA 80C to 80U TOTAL INCOME OR NET INCOME (Rounded off to nearest Rs.10* as per Section 288A. Tax on Total Income Add:- Surcharge (Wherever applicable) Total Tax and Surcharge Add: - 3% EC (i.e. 2% Education Cess and 1 %( Secondary and higher education cess) Less:- Rebate from Tax-Section S 86(Tax on income on share ofaop/boi) Section 89 (Salary etc. received in arrears or 86, 89, 90 advance), Section 91 (Tax paid in foreign countries on income accrued or aroused outside India, where no double taxation and 91 agreement is made) Net Tax Liability Less: - (i). TDS/TCS (ii). Advance Tax Balance payable on self Assessment LESS: - Self Assessment tax paid Balance NIL 22
ROUNDED OFF OF INCOME 288A. The amount of total income computed in accordance with ih the foregoing provisions of this Act shall be rounded off to the nearest multiple of ten rupees and for this purpose p any part of a rupee consisting of paisa shall be ignored and thereafter if such amount is not a multiple of ten, then, if the last figure in that amount is five or more, the amount shall be increased to the next higher amount which is a multiple of ten and if the last figure is less than five, the amount shall be reduced to the next lower amount which h is a multiple li l of ten; and the amount so rounded off shall be deemed to be the total income of the assessee for the purposes p of this Act. EXAMPLE: Total Income 230402.75= 230402.00= 203400.00 Total Income 250508.65= 250508.00= 250510.00 23
ROUNDED OFF OF TAX 288B. Any amount payable, and the amount of refund due, under the provisions of this Act shall be rounded off to the nearest multiple of ten rupees and for this purpose any part of a rupee consisting of paise shall be ignored and thereafter if such amount is not a multiple of ten, then, if the last figure in that amount is five or more, the amount shall be increased to the next higher amount which is a multiple of ten and if the last figure is less than five, the amount shall be reduced to the next lower amount which is a multiple of ten. EXAMPLE: Tax payable 10703.40 =10703.00=10700.00 Tax payable 11717.80=11717.00= 11720.00 24
Assessee means any person by whom any tax or any other sum of money is payable under this Act and covers The above definition divides various types of assessees into three categories:- 1. Ordinary assessee ----- it includes any person against whom some proceedings under this Act are going on. It is immaterial whether any tax or other amount is payable by him or not; any person who has sustained loss and filed return of loss u/s 139(3); any person by whom some amount of interest, tax or penalty is payable under this Act; or any person who is entitled to refund of tax under this Act. 2. Representative assessee or deemed assessee:- A person may not be liable only for his own income or loss but also on the income or loss of other persons e.g. agent of a non-resident, guardian of minor or lunatic etc. In such cases, the person responsible for the assessment of income of such person is called representative assesses. Such person is deemed to be an assessee
3. Deemed Assessee In case of a deceased person who dies after writing his will the executors of the property of deceased are deemed as assessees. In case a person dies intestate t t (without t writing his will) his eldest son or other legal heirs are deemed as assesses. In case of a minor, lunatic or idiot having income taxable under Income-tax Act, their guardian is deemed as assessee. In case of a non-resident having income in India, any person acting on his behalf is deemed as asseessee. Assessee-in-default:- A person is deemed to be an assessee-indefault if he fails to fulfill his statutory obligations. In case of an employer paying salary or a person who is paying interest t it is their duty to deduct tax at source and deposit the amount of tax so collected in Government treasury. If he fails to deduct tax at source or deducts tax but does not deposit it in the treasury, he is known as assessee-in-default. 26
Previous Year Exceptions-Class NOTES PREVIOUS YEAR FOR A NEWLY SET UP BUSINESS OR NEWLY SET UP PROFESSION OR IN CASE OF A NEW SOURCE OF INCOME-PROVISO TO SECTION 3 This section states that in case of a newly set up business or in case of a newly set up profession or in case of a new source of income coming into existence in any particular financial year then first Previous Year will begin from the date of such newly set up business or profession or a new source of income coming into existence and ends with the end of such financial year. Mr. J starts the business of cloth on 15/12/2010. In this case his FIRST previous year will be from 15/12/2010 to 31/3/2011 and his first AY will be 2011-2012. However his subsequent PY will start from 1/4/2011 till 31/3/2012 and so on. Mr. J is working in ABC Ltd. getting salary income of Rs. 1,50,000 pa. Mr. J starts the business of cloth on 15/12/2010. In this case he will have 2 different PY for his 2 different incomes. For his salary income his PY shall be from 1/4/2010 till 31/3/2011 but for his business income his previous year will be from 15/12/2010 to 31/3/2011. However for the tax purposes both of the incomes shall be aggregated and tax shall be imposed in the AY 2011-2012. 27