TAXATION IN INDIA ByDr Bhupendra Gautam
BRIEF HISTORY OF INCOME TAX IN INDIA
BRIEF HISTORY OF INCOME TAX IN INDIA
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In India, this tax was introduc i ntroduced ed for the first time in 1860, by Sir James Wilson in order to meet the losses sustained by the Government on account of the Military Mutiny of 1857. Thereafter; several amendments were made in it from time to time. At last.in 1886,a separate Income tax act was passed. This act remained in force up to, with various amendments from time to time.
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In 1918, a new income tax was passed and again it was replaced by another new act which was passed in 1922. This Act remained in force up to the assessment year 1961-62 with numerous amendments The Income Tax Act of 1922 had become very complicated on account of innumerable amendments.
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The Government of India therefore referred it to the law commission in1956 with a view to simplify and prevent the evasion of tax.. The law commission submitted its report in September 1958,but in the meantime the Government of India had appointed the Direct Taxes Administration Enquiry Committee submitted its report in 1956
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In consultation with the Ministry of Law finally the Income Tax Act,1961 was passed. The Income Tax Act 1961 has been brought into force with 1 April 1962.It applies to the whole of India and Sikkim(including Jammu and Kashmir).
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The Income Tax department is governed by the Central Board for Direct Taxes (CBDT). The CBDT is a part of Department of Revenue in the Ministry of Finance. It has been charged with all the matters relating to direct taxes in India. It provides essential inputs for policy and planning of direct taxes in India and is also responsible for administration of direct tax laws through the Income Tax Department.
INTRODUCTION AND CONSTITUTIONAL PROVISIONS •
India is a federal union of States with distribution of powers. Articles 245 to 255 of the Constitution of India relate to legislative relations between the Union and States in the form of distribution of legislative powers between the Parliament and the Legislature of a State.
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Powers to make laws are conferred by Articles 245, 246 and 248 of the Constitution while subject matters of laws to be made by Parliament and Legislature of a State are listed in Schedule VII to the Constitution. Distribution of legislative powers is stipulated in Article 246 read with Schedule VII of the Constitution of India. There are three lists in Schedule VII in respect of which Union or State or both will have concurrent powers to make laws.
Short title, extent and commencement. •
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This Act may be called the Income-tax Act, 1961. It extends to the whole of India. Save as otherwise provided in this Act, it shall come into force on the 1st day of April, 1962.
Meaning of Tax •
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A tax is a financial charge or levy imposed on an individual or legal entity by a state or a functional equivalent of state. Taxes are also imposed by many sub-national entities. Tax is a pecuniary burden laid upon individuals or property to support the Govt. a payment exacted by legislative authority .
Definition •
Taylor “ Taxes are compulsory payments to Govt. without of the direct returns or benefits to the tax payer .”
Characteristics •
Tax is compulsory payment .
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Aim of tax collection is public welfare
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Tax is not the cost of the benefit
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Tax is paid out of income
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Tax is a legal provision
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Benefit received is not directly the return of tax.
Objectives/Aims •
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Raising public revenue. Regulation and control. Reduction of inequality Promoting Capital formation Increase in National Income. Maintaining full employment. Restrict unnecessary consumption Maintenance of proper standard.
Principles/Canons of Taxation A tax system for achieving certain objectives chooses and adheres to certain principles which are termed its characteristics. A good tax system , therefore is one which is designed on the basis of an appropriate set of principles , such as equality and certainty. The first set of such principles was enunciated by Adam Smith(which he called Canons of Taxation). Principle of Equality. Principle of Certainty. Principle of Convenience Principle of Economy. • • • •
Other Principles/Canons of Taxation •
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Principle of Productivity Principle of Buoyancy (increasing along with an increase in national income if the rates are not revised)
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Principle of Flexibility
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Principle of Simplicity
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Principle of Diversity
Classification of Taxes •
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Direct and Indirect Tax. Proportional ,Progressive ,Regressive and Degressive taxes.
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Ad Valorem and Specific taxes.
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Single and Multiple Tax System.
Direct and Indirect Tax •
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Direct Tax- Direct Tax are those which are paid by the person on whom these are imposed and real burden is also borne by them, such as income, property, expenditure tax etc. Accor. To J.S. Mill, “A direct taxes is one which is demanded from the persons who intended or desired should pay….”
Merits of Direct taxes •
Economy.
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Certainty.
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Equity.
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Reduce Inequalities.
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Elasticity
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Simple.
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Desirable.
Demerits •
Unpopular.
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Inconvenient.
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Possibility of Evasion.
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Bad effects on production
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Expensive to collect
Indirect Tax Indirect Tax- Govt. needs funds for various purposes like maintenance of law and order, defense etc,govt. obtains funds from various sources,out of which one is Taxation. Indirect Tax are those which the tax payer pays indirectly i.e. while purchasing goods and commodities,paying for services etc.
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Accor. To Hartely, “ Taxes which are shifted quickly through commercial competition b/w consumers are Indirect taxes.”
Merits of Indirect taxes •
Easier to collect .
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Slightly less tax evasion.
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Lower collection cost.
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Control over Wasteful expenditure.
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Channelise Industrial growth.
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Higher revenue from Indirect Taxes.
Demerits of Indirect taxes •
Reduces Reduces demand of goods.
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Increase project cost.
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Modern technology becomes costly
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Increase smuggling smuggl ing/T /Tax ax evasion.
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Indirect taxes are perceived as inflationary.
Difference Difference b/w b/w Direct and and Indirect Indirect Tax Tax Direct taxes •
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Burden of taxes is borne by person on whom it is levied. Important instrument of reducing inequalities. Direct taxes taxes are to be paid in lump sum hence their burden is felt. Direct taxes taxes are certain.
Indirect taxes •
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Burden of taxes is indirect transferred transferred from one on e person Who pays it to another. Not suitable from point of view of reducing inequalities. InDirect taxes taxes are hidden in prices and hence their burden is not felt. InDirect taxes taxes are uncertain.
Merits of Proportional taxes •
Simplicity.
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Based on capacity.
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Certainty.
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Equality or justice.
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Willingness to work ,save and inve i nvest. st.
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Unchanged Unchanged position position of the the Tax-payer Tax-payer..
Demerits of Proportional taxes •
Inequitable.
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Increase inequalities.
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Less productive.
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Against the principle of Taxable capacity.
Overview 1- The provisions of Indian Income-Tax are governed by Indian Income-Tax Act, 1961 which extends to the whole of India and became effective from 1st April 1962. 2- Every year a Budget is presented before the Parliament by the Finance Minister. One of the most important components of the Budget is the Finance Bill, which contains various amendments which are sought to be made in the area of Direct Taxes levied by the Central Government.
Scheme Of Taxation •
Every person whose total income of the previous year exceeds the maximum amount which is not chargeable to income tax is an assesses and chargeable to income tax in the assessment year at the rate prescribed in the Finance Act for that relevant assessment year.
INCOME TAX Law The Income Tax Act 1961 (amended up-to-date)
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The Income Tax rules 1962(amended up-to-date) Circulars
and Clarifications by CBDT Judicial Decisions
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Finance Act
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Income Tax •
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Income Tax is a direct Tax The government has set up separate Income Tax Department for this purpose. Income Tax department works under direct control & supervision of Central Board of direct taxes(CBDT) Rates of Income tax are given in Finance Act, Passed by parliament every year.
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.
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Taxes A tax represents money that a government charges an individual or business when they perform a particular action or complete a specific transaction. This tax is often assessed as a percentage of an amount of money involved in the transaction. For example, a tax is applied on the income that a person makes during a year. In addition, a tax is often placed on the sale of goods.
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Fees A fee is related to a tax, in that it is also a charge paid to the government by individuals or by a business. However, a fee is specifically applied for the use of a service. The fee rate is directly tied to the cost of maintaining the service. Money from the fee is generally not applied to uses other than to providing the service for which the fee is applied. For example, a government may charge a fee to visit a park.
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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, that is levied currently, is meant to finance basic education in the country.
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Surcharge: This is an additional burden to the tax being already levied. Generally, surcharge is levied for a certain period time. For instance, the 10% surcharge being levied on super rich in India for one financial year.
FEE
TAX
There must be actual quid pro quo for a fee has undergone a sea changed
A tax is levied as a part of a common burden
While a fee is for payment of a specific benefit or privilege although the special to the primary purpose of regulation in public interest.
If the element of revenue for general purpose of the State predominates, the levy becomes a tax.
In regard to fee, there is and must always be, correlation between the fee collected and the service intended to be rendered.
In tax there is no necessity for a correlation between the tax collected and service intended to rendered
Difference between Tax and Cess •
1) Tax is paid on the Income earned, Service rendered and Sales made during the year. For Eg : Income Tax, Service Tax, VAT / Sales Tax, Wealth Tax 2) Cess is also a Tax. But in India the Cess which is collected is specifically utilised for the Education. For Eg : Education Cess, Secondary Higher Education Cess
Important Definitions 1. Person u/s 2(31) includes, i.
An Individual,
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Hindu Undivided Family (HUF),
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A Company,
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A Firm,
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An Association of Persons(AOP) or Body of Individuals (BOI),
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A Local Authority,
vii. Every other Artificial Juridical Person
Contd… Each Year plays two roles: 1: previous year
2:Assessment Year
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 2010-2011.
3. Previous Year u/s 2(34) means, the year in which income is earned. For ex: 2008-09 (P.Y)
2009-10 (A.Y) (P.Y)
2010-2011 (A.Y)
Contd… 4. Gross Total Income (G.T.I) :- The aggregate income under the 5 heads of income:
Salaries
Income From House Property
Profits And Gains of Business or Proffession
Capital Gains
Income from other sources Income except Tax free falling under particular head are totalled. It is reduced by amount of deductions. Resultant income is Taxable Income.Taxable Income of all head are aggregated called GROSS TOTAL INCOME.
CHARGE OF INCOME-TAX •
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Section 4 of the Income-tax Act is the charging section which provides that: (i) Tax shall be charged at the rates prescribed for the year by the annual Finance Act. (ii) The charge is on every person specified under section 2(31); (iii) Tax is chargeable on the total income earned during the previous year and not the assessment year. (iv) Tax shall be levied in accordance with and subject to the various provisions contained in the Act.
RATES OF TAX •
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Income-tax is to be charged at the rates fixed for the year by the annual Finance Act. Section 2 read with Part I of the First Schedule to the Finance Act, 2010. specifies the rates at which income-tax is to be levied on income chargeable to tax for the A.Y. 2010-11.
Who is assessee? •
Sec. 2(7) : a person by whom any tax or any other sum is payable under The Income Tax Act 1961
Assessment year sec. 2(9) Assessment year as per sec. 2(9) : the year in which inome is being assessed for tax – it is of 12 months.
Previous year as per sec. 3 •
Previous year as per sec. 3 : the year for which income is being assessed for tax – it is the year just before assessment year.
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Uniform Previous Year Previous Year For newly a set-up Business / Profession
Some cases where income of previous year is assessed in the same year •
Shipping business of non residents (sec.172)
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Assessment of persons leaving India (sec. 174)
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Assessment of AOP/BOI/AJP formed for a particular event or purpose( sec. 174A) Assessment of persons likely to transfer property to avoid tax (sec. 175) Discontinued business (sec. 176)
What is income ? Sec. 2(24) •
Sec. 2(24) : any profit, dividend, salary, profit
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in lieu of salary, perquisites, benefits,
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voluntary contributions received by trusts, cash
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benefits .
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capital gain etc. (it is a very wide definition
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and includes income from all the sources
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including income from lottery, speculative
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business etc. )
Income heads •
There are 5 heads of income :
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salary
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house property
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capital gain
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business and profession
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other income
Tax Evasion •
An evader of tax evade their liabiltiy by dishonest means by,
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Concealment of income
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Inflation of expenses to suppress income
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Falsification of accounts
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Conscious violation of rules.
Tax Avoidance •
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It is the art of dodging tax without breaking the law. Tax avoidance is lawful but involves the element of mala fide intention.
DIFFERENCE BETWEEN TAX AVOIDANCE & TAX EVASION:TAX AVOIDANCE
TAX EVASION
(1)-Tax avoidance means planning for minimization of tax (1)- Tax evasion means avoiding of tax liability illegally. according to legal requirement but it defects the basic intension of the legislature.
(2)- Tax avoidance takes into accounts various lacunas of (2)- Tax evasion involves use of unfair means. law.
(3)- Tax avoidance is lawful but involves the elements of (3)- Tax evasion is unlawful. mala fide intension.
(4)- Tax avoidance is the planning before the actual liability (4)- Tax evasion involves avoidance of payment of tax after the
for tax comes into existence.
liability of tax has arisen.
DIFFERENCE EBETWEEN TAX PLANNING & TAX MANAGEMENT:-
TAX PLANNING
TAX MANAGEMENT
(1)- Tax planning is a wider term & includes tax management.
(1)- Tax management is narrower term & is the first steps towards tax planning.
(2)- Tax planning emphasizes on minimization of tax burden.
(2)- Tax management emphasizes on compliance of legal formalities for minimization of tax.
`(3)- Every person may not require tax planning.
(3)- Tax management is essential for every person.
(4)- Tax planning helps in decision making.
(4)- Tax management helps in complying the conditions for effective decisions making.
(5)- Tax planning helps to claim various benefits of tax.
(5)- Tax management helps in complying the conditions for claiming tax benefits.
(6)- Tax planning involves comparison of various alternatives (6)- Tax management involves maintenance of accounts in before selecting the best one.
prescribed from, filling of return, payment of tax, etc.
(7)- Tax planning looks at future benefits.
(7)- Tax management relates to past present & future.
Tax Planning •
Tax Planning is the arrangement of financial activities in such way that maximum tax benefits are enjoyed by making use of all beneficial provisions in tax laws.
Residential status of individual •
There 3 possibilities :
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resident and ordinary resident
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resident and not ordinary resident
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non-resident
Basic Conditions for Residents •
1. at least 182 days of stay in India during
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previous year
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OR
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2. at least 60 days of stay in India during
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previous year + 365 days of stay in 4 years
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preceeding the previous yea
Additional conditions for ordinary residents •
1. resident in at least 2 out of previous 10 years AND
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2. stay of at least 730 days during last 7 years before the previous year.
Residential status of firms and association of persons •
A firm and an AOP would be resident in India if the control and management of its affairs is situated wholly or partly in India. Where the control and management of the affairs is situated wholly outside India, the firm would become a non-resident.
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A company is said to be resident in India if (i) it is an Indian company as defined under section 2(26), or (ii) its control and management is situated wholly in India during the accounting year. Thus, every Indian company is resident in India irrespective of the fact whether the control and management of its affairs is exercised from India or outside. But a company other than an Indian company, would become resident in India only if the entire control and management of its affairs is in India.
Residential status of local authorities and artificial juridical persons •
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Local authorities and artificial juridical persons would be resident in India if the control and management of its affairs is situated wholly or partly in India. Where the control and management of the affairs is situated wholly outside India, they would become nonresidents
SCOPE OF TOTAL INCOME •
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Section 5 provides the scope of total income in terms of the residential status of the assessee because the incidence of tax on any person depends upon his residential status. The scope of total income of an assessee depends upon the following three important considerations: (i) the residential status of the assessee . (ii) the place of accrual or receipt of income, whether actual or deemed; and (iii) the point of time at which the income had accrued to or was received by or on behalf of the assessee.
Incomes which do not Form Part of Total Income •
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Under Section 10 of the Income-tax Act, various items of income are totally exempt from income-tax. Therefore, these incomes are not included in the total income of an assessee.
AGRICULTURAL INCOME [SECTION 10(1)] MONEY RECEIVED BY AN INDIVIDUAL AS A MEMBER OF H.U.F. [SECTION 10(2)]
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SHARE OF PROFIT FROM PARTNERSHIP FIRM [SECTION 10(2A)]. INTEREST INCOME OF NON-RESIDENTS [SECTION 10(4)] INTEREST INCOME OF NON-RESIDENTS FROM SPECIFIED SAVINGS CERTIFICATES [SECTION 10(4B)] TRAVEL CONCESSION OR ASSISTANCE TO A CITIZEN OF INDIA [SECTION 10(5)] INCOME DERIVED BY A FOREIGN COMPANY [SECTION 10(6B)] INCOME OF FOREIGN AIRCRAFT BUSINESS FROM LEASE [SECTION 10(6BB)] ALLOWANCE PAYABLE OUTSIDE INDIA [SECTION 10(7)] CO-OPERATIVE TECHNICAL ASSISTANCE PROGRAMMES [SECTION 10(8)] FEE RECEIVED BY CERTAIN CONSULTANTS OUT OF FUNDS MADE AVAILABLE TO INTERNATIONAL ORGANISATION [SECTION 10(8A)] REMUNERATION RECEIVED BY CERTAIN INDIVIDUAL IN CONNECTION WITH ANY TECHNICAL ASSISTANCE PROGRAMME [SECTION 10(8B)] INCOME OF ANY MEMBER OF THE FAMILY [SECTION 10(9)] DEATH-CUM-RETIREMENT GRATUITY [SECTION 10(10)]
What is Salary: •
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Income under heads of salary is defined as remuneration received by an individual for services rendered by him to undertake a contract whether it is expressed or implied. According to Income Tax Act there are following conditions where all such remuneration are chargeable to income tax: When due from the former employer or present employer in the previous year, whether paid or not When paid or allowed in the previous year, by or on behalf of a former employer or present employer, though not due or before it becomes due. When arrears of salary is paid in the previous year by or on behalf of a former employer or present employer, if not charged to tax in the period to which it relates.
What Income Comes Under Head of Salary: •
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Under section 17 of the Income Tax Act, 1961 there are following incomes which comes under head of salary: Salary (including advance salary) Wages Fees Commissions Pensions Annuity Perquisite Gratuity Annual Bonus Income From Provident Fund Leave Encashment Allowance Awards
Leave Encashment: •
Leave encashment is the salary received by an individual for leave period. It is a chargeable income whether he is a government employee or not. Under section 10(10AA) (i) there is also a provision of exemption in case of leave encashment depending upon whether he is a government employee or other employees.
Earned Leave •
As usual free for govt. Employees
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for others least of the following : 1. 3 lakhs 2. 10 month's salary 3. 30 days credit for each year of service (salary= average for the last 10 month salary=salary+DA+commission)
Allowance: •
It is the amount received by an individual paid by his/her employer in addition to salary. Under section 15 of the Income Tax Act, 1961 these allowance are taxable excluding few condition where they are entitled of deduction/ exemptions.
House Rent Allowance •
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Under sections 10(13A) of Income Tax Act, 1961 allowance is defined as an amount received by an employee paid by his/ her employer as a rent of his/her house. It is a taxable income. There is no exemption in tax if he is living in his own house or house for which he is not paying rent. Least of the following types of amount which are exempted from tax: Actual house rent paid by that individual Rent paid for the accommodation over 10% of the salary 50% of the salary if house is placed at Delhi, Mumbai, Kolkata, Chennai or 40% of the salary in it is placed in any other city
Entertainment Allowance: •
Entertainment Allowance: It is the amount paid by employer for availing entertainment services. Under section 16(ii) of Income Tax Act, 1961 it is entitled to deduction in tax from is salary. But in this case deduction is given to his gross salary which also includes entertainment allowance
Entertainment Allowance •
Deduction for : Entertainment
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allowance (sec. 16(ii)
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It is exempt for govt. Employees to the least of
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following :
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1. 5000
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2. 1/5th of salary
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3. actual allowance
Other Special Allowances • • • • • • • • •
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Children Education Allowance Tribal Area Allowance Hostel Expenditure Allowance Remote Area Allowance Compensatory Field Area Allowance Counter Insurgency Allowance Border Area Allowance Hilly Area Allowance Allowances for there is a provision of exempt in income tax are: Allowance given to a citizen of India, who is a government employee, for rendering services outside India Allowances given to Judges of High Courts Allowance given Judges of Supreme Court Allowances received by an employee of UNO
What is Perquisite •
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Under section 17(2) of Income Tax Act, 1961 perquisite is defined as: Amount paid for the rent-free accommodation provided to the assessee by his employer Any concession in the matter of rent respecting any accommodation provided to the assessee by his employer Any benefit or amenity granted or provided free of cost or at concessional rate in any of the following cases: – –
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By a company to an employee, who is a director thereof By a company to an employee being a person who has a substantial interest in the company By any employer to an employee whose income under the head 'Salaries' exceeds Rs.24000 excluding the value of non monetary benefits or amenities Any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee Any sum payable by the employer whether directly or through a fund, other than a recognized provident fund or EPF, to effect an assurance on the life of the assessee or to effect a contract for an annuity
perquisites which are tax free • • • • • • •
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Medical facility Medical reimbursement Refreshments Subsidised Lunch/ Dinner provided by employer Facilities For Recreation Telephone Bills Products at concessional rate to employee sold by his/ her employer Insurance premium paid by employer Loans to employees by given by employer Transportation Training House without rent Residence Facility to member of Parliament, judges of High Court/ Supreme Court Conveyance to member of Parliament, judges of High Court/ Supreme Court Contribution of employers to employee's pension, annuity schemes and group insurance
Valuation of unfurnished accommodation: •
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Central and State Government employees
Value of perquisite = Licence Fees determined by Union / State Government
Private sector employees •
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Where the accommodation is owned by the employer. Where accommodation is provided in a city where population as per 2001 census is: (a) 10 lakh or less . 7.5% of salary; (b) More than 10 lakh upto 25 lakh -10% of salary. (c) More than 25 lakh . 15% of salary
Where the accommodation is taken on lease or rent by the employer and provided to the employee •
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The value of perquisite would be the lower of the following: (a) Actual amount of lease rental paid or payable by the employer ; or (b) 15% of salary
How to value furnished accommodation •
If it is owned by employer, - 10% of cost of furnishing
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if it is hired – the actual expenses paid by employer as rental charges
How to value domestic servant facility
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If the employer has provided domestic servant facility to employee, the actual amount spent by employer is perquisite of employee.
How to value educational facility •
Actual money spent by employer is taken as perquisite – when the employer is providing education to the children of the employees. If the educational instituiton is being managed by employer, then it is taken as NIL (provided the expenditure by employer is upto Rs. 1000 per month per child ).
Interest free loans •
When employer provides interest free loan – the perquisite is taken at specified rates. If it is concessional rate – the difference of rates is taken as perquisite.
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The rates are : personal loan : 12.75%, car loan 7.5%, housing loan : 8%
Medical facility •
Annaul reimbursement of medical bills upto Rs. 15000 is tax free.
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Free medical facility in employer's hospital is tax free.
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Treatment abroad for employee / his family is taxfree upto Rs. 2 lakhs.
Free lunch •
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It is taxfree – provided the value of lunch is not more than Rs. 50 similarly tea, refreshments etc. Provided free to employee are tax free. Money spent by employer on training of employee is also tax free.
Who is specified employee •
Who is director
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or who has 20% voting power in company
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or who gets salary (including perquisites ) of Rs. 50000 or more per annum.
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Car, gas, and other facilities are taxable only on Specified Employees.
What is Gratuity: •
It is salary received by an individual paid by the employee at the time of his retirement or by his legal heir in the case of death of the employee.
gratuity •
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When an employee retires, he receives gratuity from his employer. If he has worked for minimum 5 years, he may get gratuity. The amount of gratuity is exempt to the least of the following : 1. Rs. 350000 2. 15/26 * number of years worked 3. actual gratuity for government employee the gratuity is tax free.
What is Payment of Gratuity Act 1972 •
It is the main law regarding payment of gratuity. If an employee is not working in govt. Department, then payment of gratuity should be as per this act. However, in some cases this law is not applicable and in that case – the calculation of tax free gratuity is little bit different (instead of 15/26, we have to take half month salary).
What is Leave Encashment •
Leave Leave encashment is the salary received received by an individual for leave leave period. It is a chargeable income whether he is a government employee or not. Under section 10(10AA) 10(10AA) (i) (i) there is also a provision of exemption in case of leave encashment depending upon whether he is a government employee or other employees
What is Annuity •
It is an annual income received by the employee from his employer. It may be paid by the employer as voluntarily or on account of contractual agreement. It is not taxable until the right to receive the same arises. Under section 56, Income Tax Act, 1961 other annuities come under a will or granted by a life insurance company or accruing as a result of contract which comes as income under from other sources.
Is PF taxable ? •
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There are 3 types of PF : 1. statutory statutory (govt.) 2. recognised recognised 3. unrecognised unrecognised statutory PF is fully exempt employer's contribution in recognised PF is tax free to the extent of 12%, rest are exempt. Unrecognised PF is taxed only when the employee collects payment (employee's contribution is exempt, but interest is taken in income from other sources)
V.R.S. PAYMENTS •
LEAST OF THE FOLLOWING IS EXEMPT :
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1. 5 LAKHS
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2. Last salary * 3 * number of completed years of service (sec. 10(10c)
Pension •
Uncommuted : monthly payments – it is taxable for all
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commuted : - lump sum payment
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As usual free for govt. Employees
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for others : commuted pension is taxfree to the following levels :
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1/3rd if gratuity is paid
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½ if gratuity is not paid
Retrenchment compensation •
It is paid at the time of retrenchment (leaving the employee) following is tax free (least of the following ) :
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1. 5 lakhs
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2. 15 days's wages for number of years worked
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(round of to greater amount, if more than 6 months. )
Professional tax •
Money spent by employer as professional tax is once added and then its deduction can be claimed. So once add it as perquisite and then claimits deduction under sec. 16 (iii)
Income from House Property
CHARGEABILITY [SECTION 22] •
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(i) The process of computation of income under the head .Income from house property. starts with the determination of annual value of the property. The concept of annual value and the method of determination is laid down in section 23. (ii) The annual value of any property comprising of building or land appurtenant thereto, of which the assessee is the owner, is chargeable to tax under the head .Income from house property
COMPUTATION OF INCOME FROM HOUSE PROPERTY • • • • • •
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Calculate the following in the same sequence : 1. Actual rent / receivable rent (A) 2. Municipal value (b) 3. fair rent (c) 4. standard rent (d), compare b with c and take higher amount and let us call it E. Now compare E with D, take the lower amount. This is ERR (expected reasonable rent). Let us call it F. Compare it with actual rent, take higher amount. Deduct municipal tax, get gross annual value, deduct interest paid and other deduction, get net annual value
INADMISSIBLE DEDUCTIONS [SECTION25] •
Interest chargeable under this Act which is payable outside India shall not be deducted if . (a) tax has not been paid or deducted from such interest and (b) there is no person in India who may be treated as an agent under section 163.
DEEMED OWNERSHIP [ SECTION 27] •
(i) Transfer to a spouse
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(ii) Transfer to a minor child
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(iii) Holder of an impartible estate
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(iv) Member of a co-operative society .
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(v) Person in possession of a property
TREATMENT OF INCOME FROM PROPERTY OWNED BY A PARTNERSHIP FIRM •
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(i) Where an immovable property or properties is included in the assets of a firm, the income from such property should be assessed in the hands of the firm only. (ii) Hence, the property income cannot be assessed as income of the individual partner in respect of his share in the firm.
CASES WHERE INCOME FROM HOUSE PROPERTY IS EXEMPT FROM TAX • • • •
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10(1) Income from any farm house forming part of agricultural income. 10(19A) Annual value of any one palace in the occupation of an ex-ruler 10(20) Income from house property of a local authority. 10(21) Income from house property of an approved scientific research association. 10(23C) Property income of universities, educational institutions, etc. 10(24) Property income of any registered trade union. 11 Income from house property held for charitable or religious purpose. 13A Property income of any political party. 22 Property used for own business or profession 23(2) One self-occupied property of an individual/HUF
Can housing income have negative value •
Yes, because exemption in interest is granted.
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Suppose your House income is 20000, but Interest deduction allowed (sec. 24) is Rs. 40000, so it will be negative . But it cant be negative due to statutory deduction or deduction due to repairs of house property.
BJP gives its building on rent. Can congress ask BJP to give tax on housing income?
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No – it is exampt
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for political parties, it is tax free
What are the deductions from Gross value in house property? •
First of all deduct municipal taxes, to find NAV.
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Then deduct statutory deduction @30% interest on borrowed capital. Interest on prior period (period before construction of property)is also allowed in 5 instalments.
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These deductions are given in sec. 24. (a & b)
Can an assessee claim rebate for repairs, colouring of building? •
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No = Sec. 24 provides for rebates. This is an exhaustive list – only two rebates are permitted : 1. standard deduction (30%) 2. Interest for loans No other rebate is allowed – however, if the government allows other rebate – it will be permitted.
Income from business and profession
What is business and ‘Profession •
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Section 2(13) business includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. ‘Profession’ has been defined in Section 2(36) of the Act to include any vocation. According to the generally accepted principles, the meaning of the term ‘profession’ involves the concept of an occupation requiring either intellectual skill or manual skill controlled and directed by the intellectual skill of the operator. The common feature in the case of both profession as well as business is that the object of carrying them out is to derive income or to make profit. The process of making the profit would be the main area of difference between the two while the ultimate object is common to both.
Is illegal business taxable here?
Yes - in the same way as a legal business
4 conditions •
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1. business must be carried out by assesee 2. business must be carried out during previous year 3. profit has to be calculated as per accounting system (mercantile or cash) 4. all the profits from all the units to be combined to arrive at income from business
If business is not carried out in the previous year then .... •
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It is essential condition that business should be carried out during previous year – even if for 1day. Some exceptions are like : recovery of old bad debts. Etc
Which is not allowed expenditure / deduction •
Capital expenditure
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payments out of India / consultancy fees /
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interest / commission etc. – which has been
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made without making TDS
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expenditure not related to business
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cash payments above Rs. 20000 (other than
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banks and specified govt institutions)
You have to pay Rs. 5000 as excise duty, but you have not yet paid it, can you claim deduction? •
No – for such expenses (govt. Dues etc. ) only after payment you can claim it (even if you are following mercantile system – based on accruel)
You have paid Rs. 50 lakh for buying a patent, can it be claimed as deduction?
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No – it is capital expenditure
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you can claim depreciation on this
You purchased a Van of Rs 3 lakhs to promote family welfare of employees, is it allowed as deduction?
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It is again capital expenditure
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as per sec. 36(1)ix) – it is allowed in 5
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instalments – so 60000 each year is allowed
You spend Rs. 4 lakh as VRS compensation to director, is it allowed? •
Yes - it is related to business
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however as per sec. 35DD, it is allowed in 5
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equal instalments
You pay huge amount of money as entertainment expenditure and travel expenditure – is it allowed?
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Yes – if it is for business
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there is no limit
You make cash payment of 7 lakhs – in a village – where there is no bank. Is it allowed •
Generally cash payments above Rs. 20000 are not allowed. But exceptions are provided – as per rule 6DD, cash payment is allowed if there is no bank in that place or banks are closed due to strikes etc.
What are the blocks of assets? As per sec. 2(11) there are 4 blocks : 1. buildings 2. plant 3. furniture 4. intangible assets. Again each of these can be of various sub blocks – for example rate of depreciation is different for residential building from office building •
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Buildings •
There are 5 types of buildings :
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a. residence 5%
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b office 10%
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c. hotels : 20%
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d New office buildings et.c 40%
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e temporary : 100%
Plants •
It is of 6 types :
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general 25%
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cars 20%
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bus 40%
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containers 50%
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computer 60%
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pollution control : 100%
Furniture •
It is of 2 types :
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office 15%
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others 10%
Capital gain Appreciation Appreciation in value of assets ass ets come as capital gain. Sec. 45 : it is of 2 types : short s hort term and long term term short term :“Short term” capital asset means a capital asset held by an asses assessee see for not more more than thirty-six thirty-s ix months immediately preceding the date of its transfer. In the case of capital assets (being equity or preference share in a company) company) held by an assessee for not more than 12 months immediately prior to its transfer. long term : - Assets other than short-term capital capital assets are known as ‘long-term capital assets’ and the gains arising therefrom are known as ‘long-term capital gains ’. [more than 3 years (except shares,securities etc. - where it is 12 months)] • • •
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What is capital assets? •
Property Property of any kind held by an assessee whether or not connected with his business or profession profession but does not include
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1. stock
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2. movable property excluding jewellery
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3. agriculture land not located in municipality
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4. gold bond / special bearer bond / gold deposit scheme
How to compute capital gain? •
1. find sale price (transfer (transfer price) date of transfer transfer and date of acquisition acquisiti on (date will be the date of registration registration / delivery / possession as per Transfer of property act / relevant law)
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2. find cost of acquisition, cost of improvement improvement and cost of transfer transfer,, undertake necessary necessar y indexation
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3. find net benefit
What is notional cost of acquisition ? •
If someone has gifted you a car, what is your cost of acquisition, (nil) – but we will take here notional cost of acquisition. The cost incurred by the person who gifted you will become your cost of acquisition.
index factor ? •
It is called cost of inflation index. Its base is 1981-82
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so find it out for the year of purchase and for
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the year of sale.
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Formula : index in year of sale / index in year
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of purchase
Deductions from capital gain ? •
Sec. 54 : if you sale a residential house and have capital gain, your capital gain will be taxfree if you buy anothe residential house within 2 years after or 1 year before the sale or construct a new house in 3 years after date of sale of equivalent amount (otherwise it will be proportionately).
What is capital gains account scheme 1988? •
If you have yet to decide about which house to buy, then you can deposit your sale proceeds in a capital gains account scheme so that you may avoid payment of capital gain
Agriculture land Sec. 54B •
If you sale an agriculture land and buy another agriculture land in a period of 2 years, your capital gain is taxfree. (available only to individual)
Sec. 54EC : invest inspecified bonds •
If you buy specified investments – you can avoid capital gain. It is for long term capital gain the investments must be made for a minimum period of 3 years. The list of securities / investments are prescribed (for example bonds issued by NABARD) .
Pre construction period
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Pre construction period interest is divided in 5
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instalments and spread out in 5 years.
Std. Rent 36, Fair rent 45, municipal value 30, actual rent 20 what will you take a Gross annual value ? •
Higher of MV and FR = 45
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lower of this and SR = 36
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Higher of this and AR = 36
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so Gross annual value = 36 answer
INCOME FROM OTHER SOURCES •
Any income, profits profits or gains includible in the total income of an assessee, which cannot be included under any of the preceding heads of income, is chargeable under the head .Income from other sources
INCOMES CHARGEABLE UNDER THIS HEAD • • • • • • • • • • •
(1) Dividend income (2) Keyman Insurance policy Winnings from lotteries Contribution to Provident fund Income by way of interest on securities Income from hiring machinery etc Hiring out of building with machinery etc. Money Gifts Gifts in Cash or in Kind Shares as gift income by way of interest received on compensation
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there are some other incomes which are also chargeable under the head ‘Income from Other Sources’. Sources’. For example: (1) Any fees or commission received by an employee from a person other than his employer. (2) Any annuity received under a Will. It does not include an annuity received by an employee from his employer. (3) All interest interest other than t han interest on securities, e.g. interest interest on bank deposits, interest on loan, etc. (4) Income of a tenant from sub-letting the whole or a part of the house property. (5) Remuneration Remuneration received by a teacher or a lawyer for doing examination work. (6) Income of Royalty. (7) Director’ D irector’ss fees etc.
carry forward and Set off losses under different heads of Income •
If the net result for any assessment year in respect of any source falling under any head of income is a loss, the assessee is entitled to set off the amount of such loss against his income from any other source under the same head
Exception to the General Rule •
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Loss from Speculation Business: Income from speculation business is computed under the head income from business or profession. But if there is any loss from speculation business, it cannot be setoff against the income from other business or profession. It can be setoff only against the profit in a speculation business. However, the loss of non-speculation business can be set-off against the income from speculation business. (ii) Loss from the activity of owning and maintaining race horses: Loss incurred in the business of owning and maintaining race horses cannot be set off against any income except income from such business. However, loss from any activity other than the business of owning and maintaining race horses can be set off against income from the business of owning and maintaining race horses.
provisions regarding carry forward and set-off of losses •
SET-OFF OF LOSSES (Sec. 70, 71) Loss 1. Loss from house property
2. Loss from business or profession
3. Loss from speculation 4. Short-term capital loss
5. Long-term capital loss 6. Loss from activity of owning and maintaining (a) Income from activity of owing and maintaining race race horses
Set-Off (a) Income from any other house property (b) Any other head of income (a) Income from any other business or Profession. (b) Any other head of income except under the head “Salaries” (a) Income from speculation (a)Short-term capital gain (b) Long-term capital gain Long-term capital gain (a) Income from activity of owing and maintaining race horses
CARRY FORWARD AND SET-OFF OF LOSSES (Sec. 72) Loss
Set-Off
1. Loss from house property
In following eight years, income from house property. In following eight years, income from business or profession. In following four years (w.e.f. A.Y. 2006-07), income from speculation, In following eight years : (a) Short-term capital gain (b) Long-term capital gain. In following eight years, Long-term capital gain. In following four years, Income from activity of owing and maintaining race horses .
2. Loss from business or profession 3. Loss from speculation
4. Short-term capital loss
5. Long-term capital loss 6. Loss from activity of owning and maintaining race horses
DEDUCTIONS FROM GROSS TOTAL INCOME U/S 80C TO 80U •
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As per Section 80A, deductions under section 80C to 80U cannot exceed Gross Total Income (GTI). DEDUCTION UNDER SECTION 80C (a) Life Insurance premium (b) Unit Linked Insurance Plan of UTI or Mutual Fund registered in India; (c) Fixed Deposit of at least 5 years with a scheduled bank; (d) Fixed Deposit for 5 years by an individual in an account under Post Office Time Deposit Rules 1981. (e) Equity Linked saving scheme of UTI or Mutual Fund. (f) Contribution made by an Individual to SPF or RPF; (g) Public Provident Fund; (h) Approved superannuation fund;
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(l) Tuition fees of maximum 2 children; (m) Deposits in an account under the Senior citizens Savings Schemes; (n) Any contribution made by Individual or HUF as subscription to Home Loan Account Scheme of National Housing Bank (NHB); (o) Contribution to any notified pension fund set up by the NHB or Mutual fund or UTI;etc
CONTRIBUTION TO PENSION FUND OF LIC OR PRIVATE INSURER [SECTION 80CCC] •
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Deduction is allowed to an Individual only where the deposit is made in any pension plan of LIC or any other private insurer for receiving pension from the fund set up by the said corporation. Deduction is lower of contribution or ` 1,00,000. Contribution has to be made from income chargeable to tax. Surrender value received is taxable in the year of receipt in the hands of the assessee or nominee.
CONTRIBUTION TO PENSION FUND [SECTION 80CCD] •
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Deduction is allowed to an Individual (salaried class or self employed person) under the New Pension scheme set up under NPS trusts. Deduction in case of salaried employees is aggregate of the amount contributed by such individual (upto 10% of superannuation salary) and the amount contributed by the employer (upto 10% of superannuation salary) in the previous year. Superannuation salary includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites. Deduction in case of self employed is lower of the contribution and 10% of Gross total income (GTI).
CONTRIBUTION TOWARDS HEALTH INSURANCE PREMIUM [SECTION 80D] •
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Deduction is available to an individual or a HUF who contributes towards health insurance premium in the scheme of Mediclaim of GIC or of any other private insurer. Amount of deduction: Aggregate of following (a) Lower of amount deposited or ` 15,000 paid during the relevant PY if premium is for the benefit of self, spouse and dependant children (` 20,000 if any of these is a resident senior citizen); and (b) Lower of amount deposited or ` 15,000 paid during the relevant PY if premium is for the benefit of his parents (` 20,000 if any of these is a resident senior citizen); and Deduction is allowed if premium is paid otherwise than in cash and payment should be from a sum chargeable to tax.
MAINTENANCE INCLUDING MEDICAL TREATMENT OF A DEPENDANT WHO IS A PERSON WITH DISABILITY [SECTION 80DD] •
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Deduction is available to a resident Individual/HUF who maintains disabled dependant person. Amount of deduction: Deduction is allowed as follows: (a) ` 50,000 fixed deduction irrespective of expenditure incurred; (b) ` 1,00,000 fixed deduction in case of person with severe disability
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Meaning of disability: Blindness, Low vision, Leprosy cured, Hearing Impairment, Locomotor disability, Mental retardation and mental illness. Person with disability: It means a person suffering from not less than 40% of any disability as certified by a medical authority. Person with severe disability: it means a person with 80% or more of one or more disabilities.
DEDUCTION TO DISABLED INDIVIDUAL [SECTION 80U] •
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Deduction is available to a resident individual who is completely blind or suffers from permanent physical disability certified by a Medical Authority. Amount of deduction: (a) ` 50,000 deduction is allowed irrespective of expenditure incurred; (b) ` 1,00,000 deduction is allowed in case of person with severe disability. Double benefit of section 80DD and 80U is not available
DONATIONS [SECTION 80G] •
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Deduction is available to all assessees who make donation in specified fund. Deduction under this section is allowed in some case @ 100% without qualifying limit or with qualifying limit and @ 50% with or without qualifying limit. (I) Any amount donated irrespective of the gross total income is eligible for deduction. The deduction allowed is either 100% of donation made or 50% of donation made.
DEDUCTION IN RESPECT OF RENT PAID [SECTION 80GG] •
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Amount of deduction: The least of following shall be allowed as deduction: - `2,000 per month; - 25% of Adjusted Total Income; - Rent paid – 10% of Adjusted Total Income. Adjusted Total Income: Gross Total Income – Special Income – Deductions under section 80C to 80U except 80GG
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INTEREST ON LOAN TAKEN FOR HIGHER EDUCATION [SECTION 80E] DONATION FOR SCIENTIFIC RESEARCH /RURAL DEVELOPMENT [SECTION 80GGA] Deduction is equal to the amount donated to specified institution or fund. CONTRIBUTION TO POLITICAL PARTIES BY AN INDIAN COMPANY [SECTION 80GGB] CONTRIBUTION TO POLITICAL PARTIES BY OTHER THAN INDIAN COMPANY [SECTION 80GGC]
DEDUCTION OF PROFITS FROM BIODEGRADABLE WASTES [SECTION 80JJA] •
Deduction allowed is 100% of the profits of such business for the initial 5 consecutive Assessment Years from the PYs when the business commences.
DEDUCTION IN RESPECT OF ROYALTY FROM BOOKS [SECTION 80QQB] •
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Deduction is equal to an amount equal to lower of royalty income as computed above (brought into India) or `3,00,000
DEDUCTION OF ROYALTY ON PATENTS [SECTION 80RRB] •
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Amount of deduction is equal to lower of the royalty income (brought in India) or ` 3,00,000. OFFSHORE BANKING UNITS [SECTION 80LA] Deduction is available to a bank located in a Special Economic Zone for 100% of income for 5 consecutive assessment years and 50% of such income for 5 consecutive assessment years.
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DEDUCTION IN RESPECT OF PROFITS AND GAINS FROM UNDERTAKINGS ENGAGED IN INFRASTRUCTURE DEVELOPMENT, ETC. [SECTION 80-IA] SPECIAL PROVISIONS IN RESPECT OF CERTAIN UNDERTAKINGS IN CERTAIN SPECIAL CATEGORY STATES [SECTION 80-IC] The deduction under section 80-IC shall be 100% of the profits and gains of the Industrial undertaking for the first 5 years commencing from the initial assessment year and 25% (30% in the case of a company) for the next 5 years.
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DEDUCTION IN RESPECT OF PROFITS AND GAINS FROM BUSINESS OF HOTELS [SECTION 80-ID] A deduction of an amount equal to 100% of the profits and gains from the business of hotel (of two star or above category) located in the specified district having a World Heritage Site shall be allowed to the assessee for 5 consecutive assessment years beginning from the initial assessment year.
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SPECIAL PROVISIONS IN RESPECT OF CERTAIN UNDERTAKINGS IN NORTH EASTERN STATES (SECTION 80-IE) A deduction of 100% of the profits and gains for 10 consecutive assessment years shall be allowed to an assessee which (a) begins to manufacture or produce any eligible article or thing; or (b) undertake substantial expansion to manufacture or produce any eligible article or thing; or (c) carry on any eligible business, in North Eastern State.
INCOME-TAX AUTHORITIES (powers and functions) •
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The following are the income-tax authorities who are statutorily empowered to administer the law of Income-tax: (i) The Central Board of Direct Taxes, constituted under the Central Boards of Revenue Act, 1963; (ii) Directors-General of Income-tax or Chief Commissioners of Income-tax; (iii) Directors of Income-tax or Commissioners of Income-tax or Commissioners of Income-tax (Appeals); (iv) Additional Directors of Income-tax or Additional Commissioners of Income-tax or Additional Commissioners of Income-tax (Appeals); (v) Joint Directors of Income tax or Joint Commissioners of Income-tax. (vi) Deputy Directors of Income-tax or Deputy Commissioners of Income-tax or Deputy Commissioners of Income-tax (Appeals); (vii) Assistant Directors of Income-tax or Assistant Commissioners of Income-tax; (viii) Income-tax (Assessing) Officers; (ix) Tax Recovery Officers; (x) Inspectors of Income-tax.
THE CENTRAL BOARD OF DIRECT TAXES (CBDT) •
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Appointment and Working of the Board The Central Board of Direct Taxes was created under the Central Boards of Revenue Act, 1963 [Section 2(12)]. The Board in its working is closely associated with the Ministry of Finance.
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Jurisdiction It is the topmost executive authority in the sphere of direct taxes. Its powers of administration supervision and control extend over the whole department
Power •
(i)Power to make Rules
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(ii)To issue instructions:
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(iii) Power to relax mandatory provisions:
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(iv) Power to admit belated refund application
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(v) Power to decide jurisdiction:
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(vi) Power to disclose information
Director-General or Director of Income-tax •
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(a) To appoint an income-tax authority below the rank of an Assistant Commissioner (Section 117): (b) To delegate the powers of Assessing Officer to Joint Commissioner (c) To transfer cases (d) Enquiry intoconcealment [ (e) Search and seizure (f) To requisition books of account/Assets etc. (g) To make any enquiry
Chief Commissioner or Commissioner of Income-tax •
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To appoint an income-tax authority below the rank of Assistant Commissioner To delegate the powers of Assessing Officer to Deputy Commissioner To transfer case Power regarding discovery, production of evidence etc. Search and seizure To requisition books of accounts etc. Power of survey To sanction reopening of the assessment after the expiry of four years Set-off of refund against arrears of tax
Commissioner of Income-tax (Appeals) •
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The Commissioner of Income-tax (Appeals) is an appellate authority. It is vested with the judicial powers: (1) Power regarding discovery, production of evidence (Section 131) (2) Power to call for information (3) Power to inspect register of companies (3) Power to inspect register of companies (5) Disposal of appeal
Jurisdiction of Income-tax Authorities •
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Income-tax authorities are required to exercise or perform such powers or functions as are assigned to them by the Board Any income-tax authority, being an authority higher in rank, may, if so directed by the Board exercise the powers and performs the functions of the income-tax authority lower in rank and any such direction issued by the Board shall be deemed to be a direction issued under Sub-section (1). The Board may authorise any other income-tax authority to issue orders in writing for the exercise of the powers and performance of the functions by all or any of the income-tax authority who are subordinate to it [Section 120(2)]. While issuing such directions, the Board or any other income-tax authority authorised by it may take into account (i) territorial area, (ii) persons or classes of persons, (iii) incomes or classes of income, and (iv) cases or classes of cases [Section 120(3)].
RETURN OF INCOME [(SECTION 139(1)] •
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According to Section 139 of the Act it is statutorily obligatory for every person being a company or a firm or being a person other than a company or firm to furnish a return of his total income or the total income of any other person in respect of which he is assessable under the Income-tax Act, in all cases where his total income or the total income of any other person for which he is liable to be assessed exceeds, in any relevant accounting year, the maximum amount which is not chargeable to income-tax. The return of income must be furnished by the assessee in the prescribed manner by the Board from time to time
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Further, in respect of individual, HUF, AOP, BOI, Artificial juridical Person, filing of return of income shall be compulsory if their total income before allowing deductions under Sections 10A, 10B,10BA or chapter VI-A exceeds the maximum amount which is not chargeable to income tax.
Due date for filing return of income •
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The time limit for filing of the return by an assessee if his total income of any other person in respect of which he is assessable exceeds the maximum amount not chargeable to tax, shall be as follows: (a) where the assessee is – (i) a company, (ii) a person, other than a company whose accounts are required to be audited under the Income-tax Act or any other law, for the time being in force, (iii) a working partner of a firm whose accounts are required to be audited under this Act or under any law for the time being in force, the 30th day of September of the Assessment Year. (b) In the case of an assessee being a company, which is required to furnish a report referred to in section 92E, the 30th day of November of the assessment year. (c) in the case of any other assessee, the 31st day of July of the Assessment Year.
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BELATED RETURN – SECTION 139(4) Any person who has not filed the return within the time allowed under section 139(1) or within the time allowed under a notice issued by the Assessing Officer under section 142(1) may file a belated return – at any time before the expiry of one year from the end of the relevant assessment year or – before the completion of the assessment whichever is earlier.
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REVISED RETURN- SECTION 139(5) An assessee who is required to file a return of income is entitled to revise the return of income originally filed by him to make such amendments, additions or changes as may be found necessary by him. Such a revised return may be filed by the assessee at any time – before the expiry of one year from the end of the relevant assessment year – before the the completion of assessment whichever is earlier.
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TYPES OF ASSESSMENT
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(a) Self assessment (Section 140A)
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(b) Regular assessment (Section 143)
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(c) Best judgement assessment (Section 144)
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(d) Income escaping assessment or reassessment (Section 147) (e) Precautionary assessment
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Self assessment is the first step in the process of assessments. Self Assessment is simply a process where a person himself assesses his tax liability on the income earned during the particular previous year and submits Income Tax Return to the department. – Under summary assessment, Assessing Officer completes the assessment without passing a regular assessment order. The Assessing Officer issue an acknowledgement/intimation under section 143(1) of tax payable or refundable as the case may be on the basis of Return of Income filed by the assessee under section 139 or in response to a notice issued under section 142(1). – Where a return has been made under Section 139, or in response to a notice under Sub-section (1) of Section 142, the Assessing Officer shall, if he considers necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner, serve on the assessee a notice requiring him, on a date to be specified therein, either to attend his office or to produce, or cause to be produced there, any evidence on which the assessee may rely in support of the return.
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Best Judgment Assessment: The Assessing Officer, after taking into account all relevant material which he has gathered, and after giving the assessee an opportunity of being heard, makes the assessment of the total income or loss to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment. – Income Escaping Assessment: If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153. – Dispute Resolution Panel/ Precautionary assessment : The Assessing Officer shall, forward a draft order of assessment to the eligible assessee if he proposes to make, on or after the 1st day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee.
OFFENCES AND PENALTIES •
Chapters XVII and XXI of Income-tax Act, 1961, contain various provisions empowering an Income-tax Authority to levy penalty in case of certain defaults.
Section
Type of Default
Minimum Penalty
Maximum Penalty
Penalty Levied by Authority
140A(3)
Failure to pay the self assessment tax or interest or part thereof or both under Section 140A(1)
Such amount as the Assessing Officer may impose
Tax in arrears
Assessing Officer
158BFA
Determination of undisclosed income of block period
Concealment of the particulars of income or furnishing of inaccurate particulars of income
Maximum 300% of tax leviable in respect of undisclosed income 300% of the amount of tax sought to be evaded
Assessing Officer or Commissioner
271(1)(c )
Minimum 100% of tax leviable in respect of undisclosed income 100% of tax sought to be evaded
Assessing Officer or Commissioner
