Basic Principles of Income Tax in India: A Comprehensive Guide - Prof. Karmakar, Cheat Sheet of Tax Legislation and Financial Law

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Basic

Principles

of

Income

tax

Presented

by

ANIMESH MODI

SEPTEMBER

ƒ Income

tax and Death are the only two inevitable things in life ƒ In India, taxes were levied even in ancient times

• refer to Manu Smriti

Arthashastra ƒ Why to Pay Tax

“It was only for the good of his subjects that he collected taxes from them, just as the Sun draws moisture from the Earth to give it back a thousand fold“. ‐‐ Kalidas in Raghuvansh eulogizing

KING

DALIP.

ƒ Income

tax Act,

ƒ Income

tax Act,

ƒ Income

tax Rules,

Source: http://www.worldwide-tax.com 4

Countries

Tax

Rates

India

• 30

Brazil

China

• 45

Denmark

• 65

Japan

Netherland

Russia

UK

• 45

USA

ƒ Came into force w.e.f.

st April,

ƒ Extends to whole of India ƒ Consists of more than

sections,

Chapters and

schedules. The number of sub

sections, provisos and Explanations runs into several hundreds

ƒ The rates of Income

tax are prescribed every year by the Finance Act (popularly known as “The Budget”) ƒ At present, the tax rates are same for all corporate assessees and partnership firms

and there are different slabs for Individual tax payers ƒ We also have surcharge for corporate assessees and education cess for all assessees

ƒ The Act empowers the

CBDT

to formulate rules for implementing the provisions of the Act. Rules can be amended more easily than the Act

by merely publishing a notification in the Official Gazette of the

GOI.

ƒ To amend the Act, an amendment Bill has to be passed in the Parliament. ƒ In case of a conflict between the Act and the Rules, the provisions of the Act shall prevail.

ƒ Case Laws are the decisions of the various Income

tax Appellate Tribunals

(ITAT)

and the High Courts

(HC)

and the Supreme Court

(SC)

ƒ Decisions of the

SC

are binding on all lower Courts and tax authorities in India ƒ

HC

decisions are binding only in the states which are within the jurisdiction of that particular High Court ƒ Decisions of one

HC

has persuasive powers over other HCs when deciding similar issues ƒ

ITAT

can be a single member bench

(SMC)

or a two member bench or a Special Bench or a Third Member Bench 10

ƒ Section

gives definitions of various terms referred to in the Act ƒ Definitions can be inclusive definitions or exclusive definitions ƒ Definition of one term may lead to the definition of another term

ƒ

Assessee

ƒ

Assessment

Year

(A.Y.

ƒ

Previous

Year

(F.Y.

ƒ

Residential

Status

ƒ

Gross

Total

Income

ƒ

Deductions

ƒ

Total

Income

ƒ

Means a person by whom any tax or any other sumof money is payable under this Act, and includes – ▪

Person in respect of whom any proceedings under thisAct has been taken for assessment of his income ▪ Deemed assessee under provisions of this Act ▪ Any person deemed to be an assessee in default underany provisions of this Act

ƒ

The

financial

year

immediately

preceding

the

assessment

year

ƒ E.g.: For the assessment year 2014–15, the previous year is F.Y. 2013 ‐ 14 ƒ

In

case

of

a

business

or

source

of

income,

the

previous

year

commences

from

the

date

of

set

up

of

business

or

the

date

on

which

the

source

of

income

comes

into

existence

ƒ Residential status of an assessee is important in determining the scope of income on which income tax has to be paid in India. ƒ The different types of Residential Status are:

ƒ Resident

(R)

An individual or

HUF

assessee who is resident in India may be further classified into ▪ resident and ordinarily resident

(ROR)

and ▪ resident but not ordinarily resident

(NOR).

ƒ Non Resident

(NR)

ƒ To be determined in each previous year

April to

March next)

An individual is said to be resident in India inany previous year, if he satisfies any of the 2 basic conditions

a. Physical presence in India for 182 days or more in a previous year OR a. Physical presence in India for 60* days or more in the previous year and 365 days or more during the 4 years preceding the previous year

• See next slide

the

above

is

subject

to

the

following

i. Citizen leaves for employment or as member of crew of an Indian ship

• instead of 60 days, it is 182 days ii. Citizen or Person of Indian Origin already abroad comes on a visit ‐ instead of 60 days, it is 182 days

Section 6 - Resident