₹

A fee charged (“levied”) by a Government on –

 income,
 product (or)
 activity.
 Meaning of Tax

• A tax is a mandatory fee or financial charge

levied by any government on an individual or
an organization to collect revenue for public
works providing the best facilities and
infrastructure.

• The collected fund is then used to fund

different public expenditure programs.
 Types of Taxes

Direct Indirec
Tax
t Tax
 TYPES O TAXES

Direct Taxes Indirect Taxes

(Governed by (Governed by
CBDT) CBIC)

Imposed on
Imposed on
Goods &
persons
Services

Paid directly to the Paid to the Government

Government via third person
 Taxes
Direct Taxes Indirect Taxes Other Taxes
Income Tax Sales Tax Property Tax

Wealth Tax Goods & Services Tax Professional Tax

(GST)

Gift Tax Value Added Tax (VAT) Entertainment Tax

Capital Gains Tax Custom Duty Education Cess

Securities Transaction Tax Octroi Duty Toll Tax

Corporate Tax Service Tax Registration Fees

Direct Tax
• Direct tax is a type of tax levied on individuals or
entities (corporate and non-corporate) directly by the
government.
• These taxes are imposed on the basis of the taxpayer's
ability to pay, meaning that those with higher
incomes or more valuable assets typically pay more
in direct taxes.
 Indirect Tax
• The taxes levied on goods and services are referred to as
indirect taxes.
• They are different from direct taxes as they are not imposed on
an individual who shells out them directly to the Indian
government, they are, as an alternative, imposed on the
products and an intermediary, the individual selling the
product, collects them.
 If tax is levied directly on the income (or)
wealth of a person, then it is a direct tax.

  e.g. Income-tax, Wealth tax.

 If tax is levied on the price of a good (or)

service, then it is called an indirect tax.

  e.g. Excise duty, Customs duty, Service tax

and Sales tax (or) Value Added Tax.
 Tax – Duty – Cess - Surcharge
 Tax: is a payment made to the Government of a
country without any return.
 Duty: is a levied on-border tax on goods coming
and going out of the country.
 Cess: is a tax levied on tax by govt. for a specific
purpose.
 Surcharge : is an additional tax burden to those,
whose income exceeds the specified limit.
 Income tax: a levy on the income earned.
 ‘Levy’ is not a tax: it means ‘the act of
charging the tax’.
 DUTY
 This is an on-border tax charged on goods (commodities
(or) things that you can physically touch) either while
coming into the country (or) going out of the country.

 Generally, a percentage of the value of the goods.

 The duty that is levied for goods manufactured inside

the country is called as excise duty.

 Duty that is levied on goods imported from a

foreign country is called as customs duty.
 DUTY vs TAX
 Duty is a levy on goods.
  Pay the tax first and the take the goods.
(Prior payment).
 Ex: Excise duty, Customs duty.

 Tax is levy on other than goods.

  (No prior payment).
  Ex: Income tax, Sales tax, Service tax.
 SURCHARGE
 This is an additional burden to the tax being
already levied.

 Generally, surcharge is levied for a certain

period of time.

 For instance, the surcharge being levied on super

rich in India.
 CESS
This is a tax on tax, levied by the Govt. for a
specific purpose.

Generally, cess is expected to be levied till the

time the Govt. gets enough money for that
purpose.

The Education Cess @ 3%, is levied currently, is

meant to finance basic education in the country.
 WHY ARE TAXES LEVIED?
 The reason for levy of taxes is that they
constitute the basic source of revenue to
the government.

 Revenue so raised is utilised for meeting the

expenses of government like defence,
provision of education, health-care,
infrastructure facilities like roads, dams, public
lightings, drainage etc.
 The act of levying taxes is called taxation.
 Taxation System

Direct Tax Indirect Tax = GST

(Except customs)
Income Corporate
Tax Tax Intra-State Inter-State
Supplies Supplies

CGST SGST IGST

 Types of
Taxation

Progressive Regressive Proportional

Taxation Taxation Taxation

Positive change in the Negative change in the No change in the

marginal rate of tax marginal rate of tax marginal rate of tax

Income Tax rate Income Tax rate Income Tax rate

 Proportional Taxation
• A Proportional tax sometimes referred as the flat tax. It is
kind of income which provides imposition of the same
tax rates for all tax payers, irrespective of their income
level.

• The amount of proportional tax simply calculated by

multiplying the tax base income with the tax rate.

• The tax liability increase under the increasing income

level in the same proportion.
 Progressive Taxation

• Under the progressive tax system, tax rate is not uniform,

it increase with increasing level of income, lower the
income, lower the tax rate, and higher the income, higher
the tax rate.
 Regressive Taxation
• Under the regressive tax system, tax rate is not uniform,
but as against the progressive tax system, wherein the tax
rates increase with the increasing level of income, the
regressive tax system has decreasing tax rates with
increasing income levels.

• In other words, higher income lower is the tax rate, and

lower the income, higher is the tax rate. The amount of
regressive tax may also be calculated by simply
multiplying the tax base income with the tax rate.
 Degressive Taxation

• The degressive tax system is a combination of

progressive tax system and proportional tax system.

• Under this system, the regime of the progressive tax rates

is followed up to a specified limit, after which the regime
of proportional tax rates is followed.
 Digressive Taxation
• A tax is called digressive when the rate of progression in
taxation does not increase in the same proportion as the
increase in income.

• In this case, the rate of tax increases upto a certain limit, after
that a uniform rate is charged.

• Digressive tax is a combination of progressive and proportional

taxation.

• This type of taxation is often used in case of income tax.

• This is the case of income tax in India.

 On the Basis of Essence
• Ad Valorem Tax: Tax imposed as a fixed percentage on the
value of a commodity is termed as Ad Valorem means Tax.
Eg: Property Tax on Real Estate and VAT

• Specific Tax: tax imposed on a commodity on the basis of its

weight, size or measurement, it is termed as Specific Tax. It is
stated in terms of definite sum.
Eg: Sales Tax
 On the Basis of Volume
• Single Tax: Under the single tax system, only one kind of tax
is levied on tax payers.

• Multiple Tax System: Under the multiple tax system, taxes are
levied on various kinds of items or bases

• Eg: Central and State Tax

 Canons of Taxation
Canons of taxation are the fundamental principles on which an
ideal tax system is based.

These canons were laid down for the first time by Adam Smith in
his famous book, “The Wealth of Nations”.

He has suggested four canons of taxations:-

1. Canons of Equality
2. Canons of Certainty
3. Canons of Convenience
4. Canons of Economy
 Canons of Taxation
1. Canons of Equality: It states that taxation must be imposed
equally among taxpayers.
• But this approach is not balanced one as the ability of
taxpayers is not the same for all the tax payers.

2. Canons of Certainty: This canons provides that there should

be a certainty with regard to the tax liability of each and every
tax-payer.

• All aspects of tax liability, i.e. the amount of payment, manner

of payment, time of payment etc. should be stipulated in no
unclear terms to the tax-payers and all other concerned people.
 Canons of Taxation
1. Canons of Convenience: The canon of convenience is meant
not only to protect the tax-payers’ interest and convenience,
but also that of then Government.
• It underscores the need to ensure the tax-payers’ convenience
to the extent possible, regarding the mode and timing of tax
payment.

2. Canons of Economy: It implies that the cost of collecting a tax

should be kept at the lowest possible level. Any tax that involves
high administrative cost and inordinate delay in assessment and
collection of taxes need to be avoided altogether.
 Canons of Taxation
Some Other Canons:

5. Canons of Productivity: It also referred to as the canon of

fiscal adequacy, implies that taxes must be productive, or the
revenue yield from any tax must be adequate enough, so that the
Government is not compelled to go for deficit financing to meet
its expenses.

6. Canon of Diversity: It underlines the significance of

maximizing the tax collection. According to this, diversification
of taxes, covering various strata of society is yet another method
of efficient tax collection and overall tax management.
 Canons of Taxation
7. Canon of Simplicity: It states that the tax system should be
kept as simple as possible with a view easy to understand various
provisions for a tax payers.

8. Canon of Flexibility: Tax structure needs to be flexible

enough, so as to enable the authorities to make necessary changes
therein promptly, whenever considered essential.

9. Canon of social objectives: This canon underlines the

significance of fulfilling social obligations. It lays emphasis on a
close coordination and synchronization between taxation policy
and social & economic policy of the Government.

10. Canon of Functional Efficiency: It implies the tax policy to

be proficient, objective and easy to implement.
INCOME TAX
ACT 1961
 INCOME TAX
You earn it
&
The Government
takes a part (a big part) of it.
 History of Income Tax

• Income tax was first introduced in India in 1860 by

the British ruler James Wilson (who become the 1 st
India’s Finance Member), in order to meet heavy
expenses and losses suffered by the rulers due to
India’s first freedom movement of 1857.

• At present, the Income Tax Act 1961 is force in India.

The present Income Tax Act was enacted in 1961,
which came into force on 1st April 1962.

• This Act of 1961 has since been amended number of

times.
 What is Income Tax?
 It is a tax on Income.

 It is revenue for government & indicates outflow of cash

for a person who is liable to pay the tax.

 Income-tax is a tax levied on the total income of the

previous year of every person.
 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.

 The rates of Income-tax are prescribed every year by the

Finance Act (popularly known as “The Budget”).
 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.
Some of the important definitions contained
in the Act are of:
 Person;
 Assessee;
 Assessment Year;
 Previous Year;
 Assessment;
 Income;
 Dividend.
Important Terms
 Income
 Assessee
 Assessment Year (A.Y. 2018-19)
 Previous Year (P.Y. 2017-18)
 Residential Status
 Gross Total Income
Deductions
 Total Income
 Income- Sec.2(24)
 Income means some monetary returns
periodically received from some definite sources.

 i.e., it is an earning (or) continuing income from

the business (or) from a definite source.
 It includes –
 Incomes in cash;
 Incomes in kind;
 Gifts.
 Assessee
According to sec. 2(7) assessee means:

• A person liable to pay any tax (or) any other sum of

money under this Act.
• Every person :

1. who is assessable in respect of income (or) loss

of another person, (or)
2. who is deemed to be an assessee, (or)
3. who is deemed to be assessee in default.
 PERSON : Sec. 2(31)
• According to law an assessee is a person by whom any
tax is payable.

• Person includes –
 An individual;
 A firm;
 A HUF;
 A company;
 An Association of Persons (AOP) (or) Body of
Individuals (BOI);
 A local authority;
 Any artificial and juridical person not included in the
above category
 Income Tax liability of a person

• Residential status of a person decides income tax

liability.

• Previous year is the year in which the income is earned.

• Assessment year is the year in which the income is

taxed.

• AY consist of 12 months which commences on the 1st

day of April immediately after the previous year.
 Types of Assessee

• Deemed Assessee: Deemed assessees play a crucial role in ensuring that tax obligations are
met even when the original assessee cannot fulfill them due to death, incapacitation, or
absence.

Common Scenarios of Deemed Assessee:

• Legal Heirs: Responsible for paying taxes on the income or assets of a deceased person.

• Guardian or Trustee: When managing the income of a minor, mentally incapacitated

person, or a trust.

• Executors of Estates: Handling the tax obligations of a deceased individual's estate until
distribution.

• Company Liquidators: In cases where a company is under liquidation, the liquidator is

deemed responsible for filing taxes.

• Agents of Non-Residents: An agent in India responsible for handling the tax obligations of a
non-resident entity.
 Types of Assessee

• Assessee in Default: Assessee-in-default is a person

who has failed to fulfil his statutory obligations as per
the income tax act such as not paying taxes to the
government or not filing his income tax return.

• For example, an employer is supposed to deduct taxes

from the salary of his employees before disbursing the
salary.
 Income & Its Types
Income is the money you receive in exchange for your labor or goods. Income may have different
definitions depending on the context, such as taxation, financial accounting, or economic analysis.

Section 2(24) of the Income Tax Act defines income as including the following:

Salaries: Any salary, wages, annuity, pension, gratuity, or other payment received by an individual
from his employer is considered as income for taxation purposes.

Income from House Property: Any rental income earned from a house property, or the deemed
rental income from a self-occupied property, is considered as income.

Profits and Gains of Business or Profession: Any profits or gains earned by an individual from a
business or profession is considered as income for taxation purposes.

Capital Gains: Any profits or gains earned from the sale of a capital asset, such as property or
shares, is considered as income.

Income from Other Sources: Any income earned from sources other than those mentioned above,
such as interest on bank deposits, lottery winnings, or gifts, is considered as income.
 Its Types
Winnings from Lotteries, Crosswords, and Other Games: Any
winnings from lotteries, crossword puzzles, races, card games, or
any other games or gambling activities are considered as income.

Contribution to Employees’ Provident Fund (EPF) Account:

Any contribution made by an employer to an employee’s EPF
account is considered as income.

Voluntary Retirement Scheme (VRS) Compensation: Any

compensation received by an employee under a VRS is considered
as income.

Foreign Income: Any income earned by an individual outside India

is also considered as income for taxation purposes.
 Exclusions from the definition of
Income
While the above-mentioned sources of income are considered as
income for taxation purposes, there are some exclusions from the
definition of income, such as:
Agricultural Income: Any income earned from agricultural land is
exempted from taxation under Section 10(1) of the Income Tax Act.

Income of a Charitable Trust or Institution: Any income earned

by a charitable trust or institution is exempted from taxation under
Section 11 of the Income Tax Act.

Income from a Hindu Undivided Family (HUF): Any income

earned by an HUF is taxed separately from the income of its
individual members.
 ASSESSMENT

• It is a process of determining the correctness of

income of an assessee and of assessing the
amount of tax payable by him and procedure
for imposing tax liability.
 Assessment year [Sec.2(9)]

 This means the year commencing on the

1st day of April every year and ending
on 31st march of the next year.
 The current Assessment Year is 2023-24.

Previous year [Sec.3]

 Previous year means the financial year

immediately preceding the assessment year.
 The current Previous Year is 2022-23.
Previous Year and Assessment
Year
Previous Year
2022-23 Assessment
Year 2023-24

1 / 4 / 2022 31 / 3 / 2023
1 / 4 / 2023 31 / 3 / 2024
 The year in which the income is earned is known as
Previous Year (PY) and
 The year in which the income earned is taxed is called
AY.
 i.e., Income earned in the PY is taxed in the AY.
 PY in the case of newly started
business –
 In case of a newly set up business during a financial year,
the previous year shall be the period beginning with the
date of such setting up and ending with the said financial
year. i.e., the immediately following March 31st.
 Date of starting the business is 10-10-2023
Previous Assessment
Year 2023-24 Year 2024-25

10 / 10 / 2023 31 / 3 / 2024
1 / 4 / 2024 31 / 3 / 2025
 Total Income and Tax Payable
 Income-tax is levied on an assessee’s total income. Such total income has to be
computed as per the provisions contained in the Income-tax Act, 1961.
 The step by step procedure of computation of total income for the purpose of
levy of income-tax.

 Step 1 Determination of residential status;

 Step 2 Classification of income under different heads;
 Step 3 Exclusion of income not chargeable to tax;
 Step 4 Computation of income under each head;
 Step 5 Clubbing of income of spouse, minor child etc.;
 Step 6 Set-off (or) carry forward and set-off of losses;
 Step 7 Computation of Gross Total Income;
 Step 8 Deductions from Gross Total Income;
 Step 9 Total income;
 Step 10 Application of the rates of tax on the total income;
 Step 11 Surcharge;
 Step 12 Education cess and secondary and higher education cess;
 Step 13 Advance tax and tax deducted at source.
 Agricultural Income & Assessment
Agricultural income refers to the income earned or revenue generated from sources
essentially premised on agricultural activities.

These sources of income include farming land, buildings on or identified with

agricultural land as well as commercial produce from a horticultural land.

Section 2(1A) of the Income Tax Act, 1961

• Rent or revenue derived from agricultural land situated in India and used for
agricultural purposes.

• Income earned from agricultural land through the commercial sale of produce
gained from this land.
• Revenue derived from renting or leasing of buildings in or around agricultural
land.
• This building should be occupied by a farmer or cultivator through revenue or
rent.
• It is used as a residential space, warehouse/storeroom, or outhouse.
• The land on which this building is located is assessed for land revenue or a local
rate evaluated and collected by government officers.
Types of Agricultural Income
 Gross Total Income

As the name suggests, Gross Total Income is the aggregate of all the
income earned by you during a specified period.

According to Section 14 of the Income Tax Act 1961, the income

of a person or an assessee can be categorized under these five heads,

• Income from Salaries

• Income from House Property
• Profits and Gains of Business and Profession
• Capital Gains
• Income from Other Sources
 Total Income

Section 2(45) of the ITA defines total income, and the scope is defined
by Section 5.

•For Indian residents: Any income received, interest accrued, and

also expected to receive (deemed income)

•For not ordinarily resident Indians: Income generated in foreign

countries through businesses operated or controlled from India.

•For non-resident Indians (NRI): Only those earnings arising or

accruing in India
 Gross Income Vs. Total Income
Parameter Gross Income Total/ Net Income
An assessee’s overall income
is calculated under all five
The income amount is used to
income source heads as per
Meaning calculate an assessee’s payable
the ITA after applying
tax amount
clubbing rules and setting off
losses
The entire income earned in a
financial year before claiming Deductions under Section 80 (
Equals to
deductions under Chapter VI- 80C to 80U)
A
Income tax is payable on this
Tax Treatment Tax is not levied on it
sum

The income before deductions After deductions under

Deductions made under
under Chapter-VIA of the I-T Chapter VIA of the I-T Act of
Chapter VI-A of the 1961
Act of 1961 is referred to as 1961, income is defined as
Income Tax Act
gross total income. total income.

Gross Total Income is not used The total income is used to

Income Tax Obligation to determine income tax determine and/or assess the
obligations. income tax obligation.