1 Tax Basic Concepts (2)

7/30/2019 1 Tax Basic Concepts (2)

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Taxes in India are of two types,Direct Tax

Indirect Tax.

Direct Tax

like income tax, wealth tax, etc. are

those whose burden falls directly on the

taxpayer.

Indirect Tax

The burden of indirect taxes, like service tax,

VAT, etc. can be passed on to a third party.

TAXES IN INDIA


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According to income tax act 1961, everyperson,

who is anassesseeand whosetotal incomeexceeds themaximum exemption limit, shall be

chargeable to the income tax at therate or rates

prescribed in the finance act. Such income tax

shall be paid on the total income of thepreviousyear in the relevantassessment year.

The total income of an individual is determined on

the basis of hisresidential status in India.

.


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Previous Year

The financial year in which the income is earned is

known as the previous year. Any financial yearbegins from 1st of April and ends on subsequent

31st march. The financial year beginning on 1st of

April 2009 and ending on 31st march 2010 is the

previous year for the assessment year 2010-2011.

PY- 09-10, AY- 10-11


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Assessment Year

The financial year following a previous year

is known as the assessment year .Forexample for the previous year from 1st

April 2009 to 31st March 2010, the

assessment year shall be the next financialyear i.e. 1st April 2010 to 31st March 2011.


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Personas defined under the Income Tax Act

Section 2(31) of the Income Tax Act defines a person.

The definition includes

1. An individual2. A Hindu Undivided Family

3. A Company

4. A Firm

5. An Association of Persons or a Body of Individualswhether incorporated or not .

6. A Local Authority &

7. Every artificial juridical person not falling within any

of the preceding categories.


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Assessee

Means a person by whom any tax or any other sum of money is

payable under this Act, and includes

(a) every person in respect of whom any proceeding under this Act has

been taken for the assessment of his income or of the income of

any other person in respect of which he is assessable, or of the loss

sustained by him or by such other person, or of the amount ofrefund due to him or to such other person;

(b) every person who is deemded to be an assessee under any provision

of the Income Tax Act.

(c) every person who is deemded to be an assessee in default under any

provision of the Income Tax Act


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For the year AY 2009-10

For resident women below the age of 65

Taxable income slab (Rs.) Rate (%)

Up to Rs 1,90,000 NIL

1,90,000- 3,00,000 10%

3,00,000 -5,00,000 20%

5,00,000- 10,00,000 30%

3% Education Cess of Income Tax


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For resident senior citizens (age:65 years or more)



2,40,000- 3,00,000 10%

3,00,000 -5,00,000 20%

5,00,000- above 30%



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For any other Individual, every HUF/AOP, BOI/

Artificial juridical person



1,50,000- 3,00,000 10%

3,00,000 -5,00,000 20%

5,00,000- above 30%



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For resident women below the age of 65



1,90,000- 5,00,000 10%

5,00,000 -8,00,000 20%

8,00,000-above 30%



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For resident senior citizens (age:65 years or more)



2,40,000- 5,00,000 10%

5,00,000 -8,00,000 20%

8,00,000- above 30%



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For any other Individual, every HUF/AOP, BOI/

Artificial juridical person



1,60,000- 5,00,000 10%

5,00,000 -8,00,000 20%

8,00,000- above 30%



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FIRMS

Firm is taxable at the rate of 30%Surcharge Nil

EC & SEC 3% of Income Tax


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CompaniesIn case of a Domestic Company- 30%

Surcharge 10% if income exceeds Rs 1crore

In Case of a foreign company 50%/40%

Surcharge

2.5% if income exceeds Rs 1crore


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DEFINITION OF INCOME

Income is broadly defined as true increase in the amount of

wealth which comes to a person.

Some of the features are-

Regular and definite source

May be received in cash or kind

Receipt vs. accrual basis

Illegal income

Disputed title

Relief or reimbursement of expenses not treated as Income


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DEFINITION OF INCOME

Dividends, Winning from Lotteries

Temporary and permanent income- both taxable.

Lump sum receipt taxable

Personal gifts tax-free income

Income includes lossComposite Income

Pin Money


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Heads of income

-Gross Total Income

All income shall, for the purposes of charge ofincome-tax and computation of total income,be classified under the following heads of

income.

Salaries.

Income from house property.Profits and gains of business or professionCapital gains.Income from other sources


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The aggregate income under these heads istermed as Gross Total Income. Furtherdeductions U/S 80C 80U are given to arrive

at NET TAXABLE INCOME


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RESIDENTIAL

STATUS


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Residential Status

Others

Resident ofIndia NRI

Individuals/HUF

Resident ofIndia NRI

OrdinaryResident

Not OrdinaryResident


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Residence in IndiaFor the purposes of this Act.

(1) An individual is said to be resident in India in any previous

year, if he-

(a) is in India in that year for a period or periods amounting in

all to one hundred and eighty-two days or more;or(b) having within the four years preceding that year been in

India for a period or periods amounting in all to three hundred

and sixty-five days or more, is in India for a period or periods

amounting in all to sixty days or more in that year.


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Exceptions being a citizen of India, who leaves India in any

previous year as a member of the crew of an Indian

ship or for the purposes of employment outside India,

the provisions of sub-clause (b) supra shall be read as

180 days instead of 60 days.

(b) being a citizen of India, or a person of Indian origin

who, being outside India, comes on a visit to India in

any previous year, the provisions of sub-clause (b)supra shall be read as 180 days instead of 60 days.


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2. A Hindu undivided family, firm or other association of

persons is said to be resident in India in any previous

year in every case except where during that year thecontrol and management of its affairs is situated wholly

outside India.

3) A company is said to be resident in India in any

previous year, if-

(i) it is an Indian company; or

(ii) during that year, the control and management of its

affairs is situated wholly in India.


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(4) Every other person is said to be resident in India in

any previous year in every case, except where during thatyear the control and management of his affairs is situated

wholly outside India.

(5) If a person is resident in India in a previous yearrelevant to an assessment year in respect of any source of

income, he shall be deemed to be resident in India in the

previous year relevant to the assessment year in respect

of each of his other sources of income.


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(6) A person is said to be "not ordinarily resident" in India

in any previous year if such person is-

(a) an individual who has not been resident in India in two

out of the ten previous years preceding that year, or has

not during the seven previous years preceding that year

been in India for a period of, or periods amounting in allto, 730 days or more; or

(b) a Hindu undivided family whose manager has not been

resident in India in two out of the ten previous years

preceding that year, or has not during the seven previousyears preceding that year been in India for a period of,

or periods amounting in all to, seven hundred and thirty

days or more.


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Need Of Deciding The RS.

Or

Incidence Of Tax On A PersonOr

Define Total Income

Definition of Total Income

Total income means the following computed in the

manner laid down under the income tax Act.


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In case of ROI

(including ordinarily ROI i.e. for

individual & HUF)

a) Incomes reced in India or deemed to be

reced in India

b) Incomes accrued or arised in India or

deemed to accrue or arise in Indiac) Incomes accrued or arised outside


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a) Incomes reced in India or deemed to be reced in

India

b) Incomes accrued or arised in India or deemed to

accrue or arise in India

In case of NRI


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(i) Incomes reced in India or deemed to be reced in

India

(ii) Incomes accrued or arise in India or deemed to

accrue or arise in India

(iii) Incomes accrue or arise outside India from abusiness or a profession which is set up in India or

controlled from India

In case of resident but not

ordinarily resident of India,

it will be


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Incomes Reced in India or Deemed

to Be Reced in India

Receipt means first receiptAny remittance or transmission of the amt

to another place does not result in first

receipt


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Contribution made by employer to RPF inexcess of 12%

Interest credited on RPF in excess of 9.5%

TDS is deemed to be received in the handsof payee

Unexplained cash or assets or cash creditsare treated as deemed to reced

Incomes Deemed to Be Reced in India


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Incomes accrued or arise in India or

deemed to accrue or arise in India

Income from a business conection in india

Income from any property, asset, or source

of incomeIncome from transfer of any capital asset

situated in india

Dividend paid by Indian company


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Average rate of Income-tax

Means the rate arrived at by dividing the amount of

income-tax calculated on the total income, by such total

income;


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Capital asset

Means property of any kind held by an assessee, whether ornot connected with his business or profession, but does not

include-

(i) any stock-in-trade, consumable stores or raw materials heldfor the purposes of his business or profession;

(ii) personal effects, that is to say, movable property (including

wearing apparel and furniture, but excluding jewellery)held for personal use by the assessee or any member of his

family dependent on him.

Explanation.-


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Explanation.

" jewellery " includes-

(a) ornaments made of gold, silver, platinum or any other

precious metal or any alloy containing one or more of

such precious metals, whether or not containing any

precious or semi-precious stone, and whether or not

worked or sewn into any wearing apparel;

(b) precious or semi-precious stones, whether or not set in

any furniture, utensil or other article or worked or sewn

into any wearing apparel;

(iii) agricultural land in India, not being land situated-


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(a) in any area which is comprised within the jurisdiction of a

municipality or a cantonment board and which has a

population of not less than ten thousand

(b) in any area within such distance, not being more than eight

kilometres, from the local limits of any municipality or

cantonment board

(iv) 6 1/2 per cent. Gold Bonds, 1977, or 7 per cent. Gold

Bonds, 1980 or National Defence Gold Bonds, 1980 issued

by the Central Government;

(v) Special Bearer Bonds, 1991, issued by the Central

Government.


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Charitable purpose

Includes relief of the poor, education, medical relief, and

the advancement of any other object of general publicutility;

A i lt l I


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Agricultural Income

agricultural income" means-

(a) any rent or revenue derived from land which is situated in India

and is used for agricultural purposes;

(b) any income derived from such land by-

(i) agriculture

(ii) the performance by a cultivator or receiver of rent-in-kind of

any process ordinarily employed by a cultivator or receiver of

rent-in-kind to render the produce raised or received by him fitto be taken to market; or

(iii) the sale by a cultivator or receiver of rent-in-kind of the

produce raised or received by him, in respect of which no

process has been performed other than a process specified.


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Documents

1 Tax Basic Concepts (2)