Unit-1 Introduction
INCOME TAX ACT 1961
INTRODUCTION
Brought into force from 1.4.1962
Applies to the whole of India including sikkim and Jammu &Kashmir
The Act has been amended and reamended so drastically that it has become very
complicated for the administering authorities as well as for the tax payers
The Government has introduced a new Direct Taxes Code Bill 2010 in the
Parliament on 30.08.2010. so far it has not been passed by the parliament
BASIS OF CHARGEOF INCOME TAX
Income tax is an annual tax on income
Income of previous year is taxed in the next following assessment year at the rates
applicable to that assessment year.
Tax rates are fixed by the Annual Finance Act
Tax is charged on every person defined in sec2(31)
The tax is charged on the total income of every person computed in accordance with
the provisions of this act
Income tax is to be deducted at source or paid in advance as prescribed under the
provisions of the act.
IMPORTANT DEFINITIONS
INCOME
Income tax Act has not defined the term income. It is an inclusive definition
Income generally includes the revenue receipts from outside
There are some important rules regarding income which are discussed as
follows
RULES REGARDING INCOME
Definite source of income
Income may be earned legally or illegally
Not necessary that the income may be received regularly and periodically
Income should be received from outside
Income can be in monetary or non monetary form
Income may be temporary or permanent
Disputed income
Application of income vs diversification of income
Reimbursement of expenses is not income
Accrued but not received income is to be treated as income
Income may be in plus or minus
GROSS TOTAL INCOME
The aggregate of income under the following heads is known as gross total income:
Income from salaries
Income from House property
Profits and gains of business or profession
Income from capital gains
Income from other sources
the income from each head is computed after making deductions permissible under
that head
PERSON
Person includes the following:
An individual
A hindu undivided family
A company
A firm
An association of persons or body of individuals
A local authority
An artificial juridical person
ASSESSEE
ORDINARY ASSESSEE
DEEMED ASSESSEE
ASSESSEE IN DEFAULT
ORDINARY ASSESSEE
An ordinary assessee means a person:
Who is liable to pay any tax or
Who is liable to pay any other money under this act e.g. interest, penalty etc or
In respect of whom any proceedings under the act have been taken for the
assessment of his income or
In respect of whom any proceeding under the act has been taken for the assessment
of the loss sustained by him or
In respect of whom any proceeding under the act has been taken for the refund due
to him
DEEMED ASSESSEE
A person who is liable to pay tax on the income of some other person is called
deemed or representative assessee. For example:
After the death of a person his legal representative will be treated as his
deemed assessee
A person representing a foreigner, minor or person of unsound mind will be
treated as an assessee for the income of such foreigner, minor or person of
unsound mind
ASSESSEE IN DEFAULT
When a person is responsible for fulfilling an obligation under the income tax
act and he fails to do so , he is called an assessee in default. For example:
Every DDO has a legal obligation to deduct the tax at source from the income
of the people working under him and to deposit the amount in the
Government treasury. If he fails to deduct the tax or after deducting it fails to
deposit it in Government treasury, he will be treated as assesee in default
under the act and liable to prescribed punishment.
ASSESSMENT YEAR
Assessment year means a period of 12 months commencing on the first day of
April every year and ending on 31st March of the next year. An assessee is
liable to pay tax and file the return of income of the previous year in the
following financial year( assessment year)
For the purposes of the students the assessment year will be 2012-13.
PREVIOUS YEAR
Generally speaking previous year is the financial year preceding the
assessment year.
The financial year ending on 31st March will be the uniform previous year for
all the assessees and for all sources of income
For a newly set up business or for a newly created source of income the P.Y
will begin from the date of starting of business or from the date of coming
into existence of the new source of income to the end of the said financial
year. In such situation the first PY may be less than 12 months.
A financial year is both a previous year as well as an assessment year.
EXAMPLES
An assessee commences his business on:
1.07.2022,
1.10.2022,
1.01.2023
In each case what will be his AY and what period will be treated as the PY for
the concerned assessment year?
Taxation of PYs income in the AY:
exceptions to the rule
The Pys income is taxed in the same year in the following cases:
Income of non resident assessee from shipping business
Income of persons leaving india
Transfer of property to avoid tax
On discontinuance of a business or profession
