CHAPTER NO.

-1

MEANING OF TAX

A tax (from the Latin taxo; "rate") is a financial charge or other

levy imposed upon a taxpayer (an individual or legal entity) by a state or
the functional equivalent of a state to fund various public expenditures. A
failure to pay, or evasion of or resistance to taxation, is usually
punishable by law. Taxes are also imposed by many administrative
divisions. Taxes consist of direct or indirect taxes and may be paid in
money or as its labour equivalent. Few countries impose no taxation at
all, such as the United Arab Emirates and the kingdom.

Overview:

The legal definition and the economic definition of taxes differ in

that economists do not regard many transfers to governments as taxes.
For example, some transfers to the public sector are comparable to prices.
Examples include tuition at public universities and fees for utilities
provided by local governments. Governments also obtain resources by
"creating" money and coins (for example, by printing bills and by minting
coins), through voluntary gifts (for example, contributions to public
universities and museums), by imposing penalties (such as traffic fines),
by borrowing, and by confiscating wealth. From the view of economists,
a tax is a non-penal, yet compulsory transfer of resources from the private
to the public sector levied on a basis of predetermined criteria and
without reference to specific benefit received.
 In modern taxation systems, governments levy taxes in money;
but in-kind and corvée taxation are characteristic of traditional or pre-
capitalist states and their functional equivalents. The method of taxation
and the government expenditure of taxes raised is often highly
debated in politics and economics. Tax collection is performed by a
government agency such as the Canada Revenue Agency, the Internal
Revenue Service (IRS) in the United States, or Her Majesty's Revenue
and Customs (HMRC) in the United Kingdom. When taxes are not fully
paid, the state may impose civil penalties or criminal penalties (such
as incarceration) on the non-paying entity or individual.

Purposes and effects:

Money provided by taxation has been used by states and their

functional equivalents throughout history to carry out many functions.
Some of these include expenditures on war, the enforcement
of law and public order, protection of property, economic infrastructure
(roads, legal tender, enforcement of contracts, etc.), public works, social
engineering, subsidies, and the operation of government itself. A portion
of taxes also go to pay off the state's debt and the interest this debt
accumulates. Governments also use taxes to fund welfare and public
services. These services can include education systems, health care
systems, pensions for the elderly, unemployment benefits,
and transportation. Energy, water and waste management systems are
also common public utilities. Colonial and modernizing states have also
used cash taxes to draw or force reluctant subsistence producers into cash
economies.
Governments use different kinds of taxes and vary the tax rates. This is
done to distribute the tax burden among individuals or classes of the
population involved in taxable activities, such as business, or to
redistribute resources between individuals or classes in the population.
Historically, the nobility were supported by taxes on the poor; modern
social systems are intended to support the poor, the disabled, or the
retired by taxes on those who are still working.

All large businesses incur administrative costs in the process of

delivering revenue collected from customers to the suppliers of the goods
or services being purchased. Taxation is no different; the resource
collected from the public through taxation is always greater than the
amount which can be used by the government. The difference is called
the compliance and includes for example the labour cost and other
expenses incurred in complying with tax laws and rules.

Since governments also resolve commercial disputes, especially in

countries with common law, similar arguments are sometimes used to
justify a sales tax or value added tax. Others (e.g., libertarians) argue that
most or all forms of taxes are immoral due to their involuntary (and
therefore eventually coercive/violent) nature. The most extreme anti-tax
view is anarcho-capitalism, in which the provision of all social services
should be voluntarily bought by the person(s) using them.
Kinds of taxes:

The Organization for Economic Co-operation and

Development (OECD) publishes an analysis of tax systems of member
countries. As part of such analysis, OECD developed a definition and
system of classification of internal taxes, generally followed below. In
addition, many countries impose taxes (tariffs) on the import of goods.

Taxes on income:
Income tax:

Many jurisdictions tax the income of individuals and business

entities, including corporations. Generally the tax is imposed on net
profits from business, net gains, and other income. Computation of
income subject to tax may be determined under accounting principles
used in the jurisdiction, which may be modified or replaced by tax
law principles in the jurisdiction. The incidence of taxation varies by
system, and some systems may be viewed as progressive or regressive.
Rates of tax may vary or be constant (flat) by income level. Many
systems allow individuals certain personal allowances and other
nonbusiness reductions to taxable income, although business deductions
tend to be favored over personal deductions.

Personal income tax is often collected on a pay-as-you-earn basis,

with small corrections made soon after the end of the tax year. These
corrections take one of two forms: payments to the government, for
taxpayers who have not paid enough during the tax year; and tax
refunds from the government for those who have overpaid. Income tax
systems will often have deductions available that lessen the total tax
liability by reducing total taxable income. They may allow losses from
one type of income to be counted against another. For example, a loss on
the stock market may be deducted against taxes paid on wages. Other tax
systems may isolate the loss, such that business losses can only be
deducted against business tax by carrying forward the loss to later tax
years.

Negative income tax:

In economics, a negative income tax (abbreviated NIT) is

a progressive income tax system where people earning below a certain
amount receive supplemental pay from the government instead of paying
taxes to the government.

Capital gains tax:

Most jurisdictions imposing an income tax treat capital gains as

part of income subject to tax. Capital gain is generally a gain on sale of
capital assets—that is, those assets not held for sale in the ordinary course
of business. Capital assets include personal assets in many jurisdictions.

Corporate tax:

Corporate tax refers to income, capital, net worth, or other taxes

imposed on corporations. Rates of tax and the taxable base for
corporations may differ from those for individuals or other taxable
persons.

Social security contributions:

Many countries provide publicly funded retirement or health care

systems. In connection with these systems, the country typically requires
employers and/or employees to make compulsory payments. These
payments are often computed by reference to wages or earnings from
self-employment. Tax rates are generally fixed, but a different rate may
be imposed on employers than on employees. Some systems provide an
upper limit on earnings subject to the tax. A few systems provide that the
tax is payable only on wages above a particular amount. Such upper or
lower limits may apply for retirement but not health care components of
the tax.

Taxes on payroll or workforce:

Unemployment and similar taxes are often imposed on employers

based on total payroll. These taxes may be imposed in both the country
and sub-country levels.

Taxes on property:

Recurrent property taxes may be imposed on immovable property (real

property) and some classes of movable property. In addition, recurrent
taxes may be imposed on net wealth of individuals or corporations. Many
jurisdictions impose estate tax, gift tax or other inheritance taxes on
property at death or gift transfer. Some jurisdictions impose taxes on
financial or capital transactions.
Property tax:
property tax (or millage tax) is an ad valorem tax levy on the value
of property that the owner of the property is required to pay to a
government in which the property is situated. Multiple jurisdictions may
tax the same property. There are three general varieties of property: land,
improvements to land (immovable man-made things, e.g. buildings) and
personal property (movable things). Real estate or realty is the
combination of land and improvements to land.

Wealth (net worth) tax:

Some countries' governments will require declaration of the tax

payers' balance sheet (assets and liabilities), and from that exact a tax
on net worth (assets minus liabilities), as a percentage of the net worth, or
a percentage of the net worth exceeding a certain level. The tax may be
levied on "natural" or legal "persons".
Taxes on goods and services:
Value added tax (Goods and Services Tax):

A value added tax (VAT), also known as Goods and Services

Tax (G.S.T), Single Business Tax, or Turnover Tax in some countries,
applies the equivalent of a sales tax to every operation that creates value.
To give an example, sheet steel is imported by a machine manufacturer.
That manufacturer will pay the VAT on the purchase price, remitting that
amount to the government. The manufacturer will then transform the steel
into a machine, selling the machine for a higher price to a wholesale
distributor.

Sales taxes:

Sales taxes are levied when a commodity is sold to its final

consumer. Retail organizations contend that such taxes discourage retail
sales. The question of whether they are generally progressive or
regressive is a subject of much current debate. People with higher
incomes spend a lower proportion of them, so a flat-rate sales tax will
tend to be regressive. It is therefore common to exempt food, utilities and
other necessities from sales taxes, since poor people spend a higher
proportion of their incomes on these commodities, so such exemptions
make the tax more progressive. This is the classic "You pay for what you
spend" tax, as only those who spend money on non-exempt (i.e. luxury)
items pay the tax.

Excises:
An excise duty is an indirect tax imposed upon goods during the
process of their manufacture, production or distribution, and is usually
proportionate to their quantity or value. Excise duties were first
introduced into England in the year 1643, as part of a scheme of revenue
and taxation devised by parliamentarian John Pym and approved by
the Long Parliament. These duties consisted of charges on beer, ale,
cider, cherry wine and tobacco, to which list were afterwards added
paper, soap, candles, malt, hops, and sweets. The basic principle of excise
duties was that they were taxes on the production, manufacture or
distribution of articles which could not be taxed through the customs
house, and revenue derived from that source is called excise revenue
proper. The fundamental conception of the term is that of a tax on articles
produced or manufactured in a country

Tariff:

An import or export tariff (also called customs duty or impost) is a

charge for the movement of goods through a political border. Tariffs
discourage trade, and they may be used by governments to protect
domestic industries. A proportion of tariff revenues is often hypothecated
to pay government to maintain a navy or border police. The classic ways
of cheating a tariff are smuggling or declaring a false value of goods.
Tax, tariff and trade rules in modern times are usually set together
because of their common impact on industrial, investment policy,
and agricultural policy.
 CHAPTER NO.-2
COMPARISON ON DIRECT AND INDIRECT TAX

BASIS
DIRECT TAX INDIRECT TAX
FORCOMPARISON

Meaning Direct tax is referred to as Indirect Tax is referred to

the tax, which is paid by the as the tax, which is paid
person to the government by the taxpayer to the
to whom it is levied and government indirectly,
charged on the income and charged on goods and
wealth of persons. services.

Burden The person on whom it is The burden of tax can be

levied bears its burden. shifted to another
person.

Types Wealth Tax, Income Tax, Central Sales tax, VAT

Property Tax, Corporate (Value Added Tax),
Tax, Import and Export Service Tax, STT
Duties. (Security Transaction
Tax), Excise Duty,
Custom Duty.

Evasion Tax evasion is possible. Tax evasion is hardly

possible because it is
included in the price of
goods and services.

Inflation Direct tax helps in reducing Indirect taxes promote

inflation. inflation.
 BASIS
DIRECT TAX INDIRECT TAX
FORCOMPARISON

Levied on Persons, i.e. Individual, Consumers of goods and

HUF (Hindu Undivided services.
Family), Company, Firm
etc.

Nature Progressive Regressive

 CHAPTER NO.-3

EXEMPTION U/S 10 V/S DEDUCTION UNDER

CHAPTER 6(A)

According to Chapter III of the Income Tax Act, 1961

there is a provision of exemptions in income tax. There are few
types of specified income on which a person can get exemption.
It means that at the time of calculating annual income, this type
of income will not be added. For claiming any of these
exemptions, it is necessary to furnish documents which shows
that your income comes under this list.

Income Tax Exemptions refer to those incomes of a

person which are not taxable at the time of calculating income
tax. In India, Chapter III of the Income Tax Act, 1961 gives the
provision for exemptions in Income Tax. Explore the following
list of some special types of Income which come under the
exemption cover of Income Tax. Submit all the docu ments
related to such type of Income and get your clasim easily.
General:
Section Nature of Income Exemption limit, if any
10(1) Agricultural income
Share from income of
10(2)
HUF
10(2A) Share of profit from firm
10(3) Casual and non- Winnings from races
recurring receipts Rs.2500/- other receipts
Rs.5000/-
10(10D) Receipts from life
Insurance Policy
10(16) Scholarships to meet
cost of education
10(17) Allowances of MP and For MLA not exceeding
MLA. Rs. 600/- per month
10(17A) Awards and rewards
(i) from awards by
Central/State
Government
(ii) from approved
awards by others
(iii) Approved rewards
from Central & State
Governments
10(26) Income of Members of Only on income arising
scheduled tribes residing in those areas or interest
in certain areas in North on securities or
Eastern States or in the dividends
Ladakh region.
10(26A) Income of resident of On income arising in
Ladakh Ladakh or outside India
10(30) (i) Subsidy from Tea
Board under approved
scheme of replantation
10(31) (ii) Subsidy from
concerned Board under
approved Scheme of
replantation
10(32) Minor's income clubbed Upto Rs. 1,500/-
with individual
10(33) Dividend from Indian
Companies, Income from
units of Unit Trust of
India and Mutual Funds,
and income from
Venture Capital
Company/fund.
10(A) Profit of newly
established undertaking
in free trade zones
electronic hardware
technology park on
software technology
park for 10 years (net
beyond 10 year from
2000-01)
10(B) Profit of 100% export
oriented undertakings
manufacturing articles or
things or computer
software for 10 years
(not beyond 10 years
from 2000-01)
10(C) Profit of newly
established undertaking
in I.I.D.C or I.G.C. in
North-Eastern Region
for 10 years
Income From Interest:
Exemption limit, if
Section Nature of Income
any
10(15)(i)(iib)(iic) Interest, premium on? To the extent
redemption or other mentioned in
payments from notification
notified securities,
bonds, Capital
investment bonds,
Relief bonds etc.
10(15)(iv)(h) Income from interest
payable by a Public
Sector Company on
notified bonds or
debentures
10(15)(iv)(i) Interest payable by
Government on
deposits made by
employees of Central
or State Government
or Public Sector
Company of money
due on retirement
under a notified
scheme
10(15)(vi) Interest on notified
Gold Deposit bonds
10(15)(vii) Interest on notified
bonds of local
authorities
Income from Salary:
Section Nature of Income Exemption limit, if any
10(5) Leave Travel assistance/ Not to exceed the
concession amount payable by
Central Government to
its employees
10(5B) Remuneration of Exemption in respect of
technicians having income in the from of
16ecognized16 tax paid by employer for
knowledge and a period upto 48 months
experience in specified
fields (not resident in
any of the four
preceding financial
years) whose services
commence after 31.3.93
and tax on whose
remuneration is paid by
the employer
10(7) Allowances and
perquisites by the
government to citizens
of India for services
abroad
10(8) Remuneration from
foreign governments for
duties in India under
Cooperative technical
assistance programmes.
Exemption is provided
also in respect of any
other income arising
outside India provided
tax on such income is
payable to that
Government.
10(10) Death-cum-retirement
Gratuity-
 (i) from Government
(ii) Under payment of Amount as per Sub-
Gratuity Act 1972 sections (2), (3) and (4)
of the Act.
(iii) Any other Upto one-half months
salary for each year of
completed service.
10(10A) Commutation of
Pension-
(i) from government,
statutory Corporation
etc.
(ii) from other Where gratuity is
employers payable – value of 1/3
pension.? Where gratuity
is not payable – value of
½ pension
(iii) from fund set up by
LIC u/s 10(23AAB)
10(10AA) Encashment of
17ecognized earned
leave
(i) from Central or State
government
(ii) from other Upto an amount equal to
employers 10 months salary or Rs.
1,35,360/- which ever is
less
10(10B) Retrenchment Amount u/s. 25F(b) of
compensation Industrial Dispute Act
1947 or the amount
notified by the
government, whichever
is less.
10(10C) Amount received on Amount as per the
 voluntary retirement or Scheme subject to
termination of service or maximum of Rs. 5 lakh
voluntary separation
under the schemes
prepared as per Rule
2BA from public sector
companies, statutory
authorities, local
authorities, Indian
Institute of Technology,
specified institutes of
management or under
any scheme of a
company or Co-
operative Society
10(11) Payment under
Provident Fund Act 1925
or other notified funds
of Central Government
10(12) Payment under To the extent provided
18ecognized provident in rule 8 of Part A of
funds Fourth Schedule
10(13) Payment from approved
Superannuation Fund
10(13A) House rent allowance least of-
(i) actual allowance
(ii) actual rent in excess
of 10% of salary
(iii) 50% of salary in
Mumbai, Chennai, Delhi
and Calcutta and 40% in
other places
10(14) Prescribed [See Rule To the extent such
2BB (1)] special expenses are actually
allowances or benefits incurred.
specifically granted to
meet expenses wholly
 necessarily and
exclusively incurred in
the performance of
duties
10(18) Pension including family
pension of recipients of
notified gallantry awards

Exemptions to Non-citizens only:

Section Nature of Income Exemption limit, if any
10(6)(i)(a) (i) passage money from
and (b) employer for the
employee and his family
for home leave outside
India
(ii) Passage money for
the employee and his
family to 'Home country'
after
retirement/termination
of service in India.
10(6)(ii) Remuneration of
members of diplomatic
missions in India and
their staff, provided the
members of staff are not
engaged in any business
or profession or another
employment in India.
10(6)(vi) Remuneration of
employee of foreign
enterprise for services
rendered during his stay
in India in specified
circumstances provided
the stay does not exceed
90 days in that previous
 year.
10(6)(xi) Remuneration of foreign
Government employee
on training in certain
establishments in India.

Exemptions to Non-resident Indians (NRIs) only:

Section Nature of Income Exemption limit, if any
11.2 The units purchased by
them are out of the
amount remitted from
abroad or from their
Non-resident (External)
Account
DEDUCTION UNDER CHAPTER 6(A):

There are various sections Under Chapter 6A of Income Tax Act :

 Under Section 80C – Various Investments & Expenses.

 Under Section 80CCC – Premium for Annuity Plans.
 Under Section 80CCD – Contribution to Pension Account.
 Under Section 80CCG – RGESS 2012 Equity Fund Investments.
 Under Section 80D – Medical/ Health Insurance.
 Under Section 80DD – Rehabilitation of Handicapped Dependent
Relative.
 Under Section 80DDB – Medical Expenditure on Self or Dependent
Relative.
 Under Section 80E – Interest on Loan for Higher Studies.
 Under section 80 EE- Additional interest exemption on Home Loans
less than 25 lakhs.(applicable for FY 2014-15)
 Under Section 80G – Various Donations.
 Under Section 80GG – House Rent paid.
 Under Section 80TTA- Interest on Deposits in Savings Account.
 Under Section 80U – Employee suffering from Physical Disability.
 New with ITR-4 in assessment year 2015-16:

ITR- 4 is the income tax return form for freelancers, professionals

or those who run a business. If you have been filing ITR-4 and want to
know what changed in the forms from last year, read on.

There has been some confusion about the additional information that is
being sought this year, and here is the list of significant changes in ITR-4.
 Aadhaar card information & passport number – An individual tax
payer must provide aadhaar card and also a passport number, where
available.
 Details of bank accounts held – Similar to other ITR -1, ITR-2, ITR-
2A, details have been requested for IFS Code of the bank, name of the
bank, account number, whether it’s a savings or current and account in
which refund should be credited.
 Foreign assets or income or bank accounts – Information about
whether the taxpayer holds assets located outside India, any signing
authority in an account outside India or whether there is income from
any source outside India, in case yes is ticked here, details have to be
provided in Schedule FA.
 Schedule FA – Foreign assets, accounts and income disclosure – In
schedule FA on foreign assets disclosure, the following additional
details have been added.

a) Foreign Bank accounts details: It is now further required to furnish

details of interest accrued in the account, the amount which is taxable
from this interest and mention the schedule where it has been offered in
the return.
 b) Similar details are asked of income from financial interest in any entity
outside India, along with details of income offered to tax from such
income and details of where it has been mentioned in the return.

c) Similar disclosure requirement is also required for Immovable property

outside India, capital asset held outside India (including any beneficial
interest) and for a trust held outside India, including income from any
other source outside India, not included above.
 Details of utilization of capital gains account scheme – Tax payers to
mention if unutilized capital gains on asset transferred during the
previous years (FY 2011-12 and FY 2012-13) was deposited in the
Capital Gains Accounts Scheme within due date for that year. And also
to provide details (for each FY 2011-12 and 2012-13) of utilization of
amount deposited in capital gain account scheme. With details of
relevant income tax section in which the deduction was claimed in
these years, amount utilized from the capital gains account to purchase
or construct new asset as well as amount unutilized lying idle in capital
gain account scheme till the date of filing of return of income.

Unutilized amounts from capital gains account schemes are taxed when
not invested within the specified period. The uninvested amount is taxed
as short term capital gains when the specified period for investment
lapses.
 Details of DTAA benefit claimed – Additional disclosures have been
added where no tax has been charged to an NRI by virtue of DTAA
benefit. Details are required for name of the country, article of DTAA,
Whether Tax Residency Certificate was obtained or not. One has to
mention the corresponding section of the Act which prescribes the rate.
 Additional disclosure for MAT calculation – In schedule AMT,
under adjustments made under section 115JC(2) a row has been added
 for providing information on deduction claimed under section 35AD as
reduced by the amount of depreciation on assets on which such
deduction has been claimed.
 Additional Details of exempt agricultural income – Instead of net
agricultural receipts, gross agricultural receipts have been requested,
with details of expenses incurred on agriculture, unabsorbed loss of
previous 8 years.

Following taxpayers shall file their return of income only through

e-filing mode:

(1) From the assessment year 2015-16 onwards any asessee filing ITR
1/2/2A (other than an individual of the age of 80 years or more at anytime
during the previous year) having a refund claim in the return or having
total income of more than Rs. 5,00,000 is required to furnish the return of
income electronically with or without digital signature or by using
electronic verification code.

(2) Every company shall furnish the return of income electronically under
digital signature. In other words, for corporate taxpayer e-filing with
digital signature is mandatory.

(3) A firm or an individual or a Hindu Undivided Family (HUF) whose

books of account are required to be audited under section 44AB shall
furnish the return of income electronically under digital signature. In
other words, in such a case, e-filing with digital signature is mandatory.
(4) A resident assessee having any assets (including financial interest in
any entity) located outside India or signing authority in any account
located outside India shall furnish the return of income electronically with
or without digital signature or by using electronic verification code.

(5) Taxpayers claiming relief under section 90, 90A or 91 shall furnish
the return of income electronically with or without digital signature or by
using electronic verification code.

(6) A person who is required to file ITR – 5 shall file the same
electronically with or without digital signature. However, a firm liable to
get its accounts audited under section 44AB shall furnish the return
electronically under digital signature.

(7) A taxpayer who is required to furnish a report of audit under sections

10(23C)(iv), 10(23C)(v), 10(23C)(vi), 10(23C)(via), 10A, 10AA,
12A(1)(b), 44AB, 44DA, 50B, 80-IA, 80-IB, 80-IC, 80-ID, 80JJAA,
80LA, 92E, 115JB or 115VW or shall furnish the report electronically on
or before the date of filing the return.

(8) Return Form ITR- 3is to furnish electronically in the following

modes:
(i) by furnishing the return electronically under digital signature;
(ii) by transmitting the data in the return electronically under electronic
verification code;
(iii) by transmitting the data in the return electronically and thereafter
submitting the verification of the return in Return Form ITR-V.
(9) Return Form ITR-4 is to be furnish electronically in the following
modes:
 (i) by furnishing the return electronically under digital signature;
(ii) by transmitting the data in the return electronically under electronic
verification code;
(iii) by transmitting the data in the return electronically and thereafter
submitting the verification of the return in Return Form ITR-V;
However, where the books of accounts are required to be audited under
section 44AB, the return is required to be furnished in the manner
provided at (i) i.e. e-filing with digital signature.
 CONCLUSION

In conclude that a tax (from the Latin taxo; "rate") is a financial

charge or other levy imposed upon a taxpayer (an individual or legal
entity) by a state or the functional equivalent of a state to fund various
public expenditures. A failure to pay, or evasion of or resistance to
taxation, is usually punishable by law. Taxes are also imposed by
many administrative divisions. Taxes consist of direct or indirect
taxes and may be paid in money or as its labour equivalent.

Since governments also resolve commercial disputes, especially in

countries with common law, similar arguments are sometimes used to
justify a sales tax or value added tax. Others (e.g., libertarians) argue that
most or all forms of taxes are immoral due to their involuntary (and
therefore eventually coercive/violent) nature. The most extreme anti-tax
view is anarcho-capitalism, in which the provision of all social services
should be voluntarily bought by the person(s) using them.
 BIBILIOGRAPHY

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