UNDERSTANDING-- TAXATION SYSTEM

UNDERSTANDING-- TAXATION SYSTEM

TO UNDERSTAND TAXATION SYSTEM IN TOTALITY ONE HAS TO UNDERSTAND ALL OF THE FOLLOWING The Core 1 3 5 8 7 1. Act 2. Rules 3. Notifications 4. Circulars The outer effects affecting core Taxation 2 4 6 5. Judgement-Tribunal 6. Judgement High Court 7. Judgement Supreme Court 8. World Around Development

Peep into History :- Taxation and Death are the only two inevitable things in life In India, taxes were levied even in ancient times refer to Manu Smriti (Chapter VIII) & Arthashastra (Chapter XXXV)

Income-tax Act, 1961 Came into force w.e.f. 1 st April, 1962 Extends to whole of India Consists of more than 300 sections, 23 Chapters and 14 schedules. The number of sub-sections, provisos and Explanations runs into several hundreds

Income-tax Act, 1961 The Act determines which persons are liable to pay tax and in respect of which income. The sections lay down the law of income tax and the schedules lay down certain procedures and give certain lists, which are referred to in the sections. However, the Act does not prescribe the rates of Income Tax

Income-tax Act, 1961 The rates of Income-tax are prescribed every year by the Finance Act (popularly known as The Budget ) At present, the tax rates are same for all corporate assessees and partnership firms (30%) and there are different slabs for Individual tax payers We also have surcharge for corporate assessees and education cess for all assessees

Income-tax Rules, 1962 The Act empowers the CBDT to formulate rules for implementing pmthe rovisions of the Act. Rules can be amended ore easily than the Act - by merely publishing a notification in the Official Gazette of the GOI. To amend the Act, an amendment Bill has to be passed in the Parliament. In case of a conflict between the Act and the Rules, the provisions of the Act shall prevail.

Circulars / Notification issued by the CBDT CBDT issues circulars on certain matters for the guidance of the Tax Officers and the general public Circulars are binding only on the Income Tax Officers Circulars cannot change the provisions of law; they can merely clarify the law or relax certain provisions in favour of the taxpayers In event of a dispute, the Courts are not bound by the circulars

Case Laws and Doctrine of Precedents Case Laws are the decisions of the various Income-tax Appellate Tribunals (ITAT) and the High Courts (HC) and the Supreme Court (SC) Decisions of the SC are binding on all lower Courts and tax authorities in India HC decisions are binding only in the states which are within the jurisdiction of that particular High Court Decisions of one HC has persuasive powers over other HCs when deciding similar issues ITAT can be a single member bench (SMC) or a two member bench or a Special Bench or a Third Member Bench

Definitions :- Section 2 gives definitions of various terms referred to in the Act Definitions can be inclusive definitions or exclusive definitions Definition of one term may lead to the definition of another term

Definitions :- Some of the important definitions contained in the Act are of: o Person o Assessee o Assessment Year o Previous Year o Assessment o Income o Annual Value (Considered with Income from House Property) o Business (Considered with Business Income) o Capital Asset (Considered with Capital Gain) o Transfer (Considered with Capital Gain)

Person-2(31) An Individual Hindu Undivided Family Company Section 2(17) Firm Association Of Person Body Of Individual Local Authority Artificial Juridical Person

Person-2(31) An Individual A natural Human being i.e male, female, transgender, minor, or a person of Sound or Unsound mind

Person-2(31) Hindu Undivided Family Consist of all persons lineally descended from a common ancestor and includes their wives and unmarried daughter. Schools of Hindu Law Daya-bhaga Mitaksara

Person-2(31) Firm The term firm partner & partnership have the same meaning assigned to them in the Indian Partnership Act. Also include LLP as defined in LLP Act, 2008

Person-2(31) Association Of Person Two or more person join together for common purpose or common action Profit may not be necessary The members can be Individual ; HUF; Firm; Company, etc

Person-2(31) Body Of Individual It s creation by operation of law. Only Individual are members. Assessable in same manner like individually beneficiary.

Person-2(31) Company Section Any Indian 2(17) Company as define under Sec 2(26) i.e. Company formed under any Company Act and Company having Registered Office in India. It also include Corporation establish by Central; State Or Provisional Act Sec 2(26) Sec 2(23A) Foreign Company means which is not Domestic Company (Domestic Company is defined u/s 2(22A) as a) Indian Companies b) Any company which liable to Income tax in India and has made arrangement for payment / declaration of Dividend out of Such profit. Old Act Any Institute; AOP; Body which was assess as Company as per old law Or DECLARED BY CBDT as Company, for such Assessment years as declared, u/s 2(17)(iv).

Person-2(31) Local Authority Government body-created by law. Control by government fund.

Person-2(31) Artificial Juridical Person Cover not only deities but all artificial persons with juridical personality.

Assessee ----- ******* Assessment Year (A.Y. 2018-19)----- ******* Important Terms Previous Year (F.Y. 2017-18)----- ******* Residential Status----- ******* Gross Total Income Deductions Total Income *******Detail in Definition

Assessment Year-Sec 2(9) Assessment year means the period starting from April 1 and ending on March 31 of the next year. E.g. - Assessment year 2015-16 which commenced on April 1, 2015 and will end on March 31, 2016.

PREVIOUS YEAR-Sec 3 The financial year immediately preceding the assessment year. E.g.: For the assessment year 2016-17, the previous year is F.Y. 2015-16 In case of a business or source of income, the previous year commences from the date of set up of business or the date on which the source of income comes into existence.

Assessment-Sec 2(8) Assessment include Re-assessment In Simple word Checking of Return file, to determine whether it reflects true and fair position of the assessee Status visà-vis the Income and Wealth.

Income Sec 2(24)-includes Revenue Receipts Profit and Gains Dividends Define 2(22) Voluntary contributions received by a Charitable / Religious trust or University / educational institution or Hospital / Electoral trust. The value of any perquisite or profit in lieu of salary taxable under clauses (2) and (3) of section 17 Any special allowance or benefit, 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 or 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 or to a person who has a substantial interest in the company, or by a relative of the director or such person,

Capital Receipts Income Sec 2(24)-includes Capital Gain Chargeable U/s 45. Any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever. Any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy. Any Sum received on account of non-competing fees and exclusivity rights as covered by Section 28(va) Gift received by Individual or HUF in form of money or assets, where the aggregate value exceeds 50,000, except when received by assessee from relative or on occasion of marriage or by will or inheritance or in contemplation of death or any local authority or from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or from any trust or institution registered under section 12AA.

CA Income Sec 2(24)-includes Capital Receipts Assistance in form of subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement, by whatever name called, by the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee is included in definition of income. The only exclusions are (i) The subsidy or grant or re-imbursement which has been taken into account for determination of the actual cost of the asset in accordance with Explanation 10 to Section 43(1) and (ii) The subsidy or grant by the Central Government for the purpose of a trust or institution established by the Central / State government.

Deemed Receipts Income Sec 2(24)-includes Deemed Profit u/s 41-Balancing Charge Deemed Profit u/s 59 Profit & Gain Chargeable u/s 28 Perquisites or benefit obtain by Representative Assessee or by beneficiary which otherwise he would have required to pay. Profit / gains of insurance business carried on by Mutual Insurance Company. Profit / gains of a Co-operative Society calculated in accordance with Section 44 Profit / gains of a Co-operative banking society. Any Sum received by the assessee from his employees as contribution to ESIS/PF/Other Employee Welfare Scheme. Any consideration received for issuance of share the market value of which exceeds fair value of the shares referred to in section 56(2)(viib) Any sum of money or value of property referred-in section 56(2)(vii)/ (viia)

Dividend Sec 2(22) Following receipt are deemed to be dividend Distributions of Debentures / Deposit certificates & Bonus Shares to Preference Shareholder Advance or Loan by Closely held Company to it s shareholder. Distribution of Accumulated Profits, entailing the release of company s assets. Distribution on Liquidation Distribution on Reduction of Capital.