INCOME TAX LAW AND PRACTICE BBA 301 NOTES Submitted by Dr Anita Sharma Dr Rajeev Dahiya Dr Asha Chaudhary Ms Pooja Dabas Mr Paramveer Singh 1 2 INDEX CONTEN TS Unit Name Unit No I Page Number 4 48 INTRODUCTION TO INCOME TAX ACT 1961 Lesson1 Introduction of Taxation system in India Lesson2 Residential Status Lesson3 Income Exempt from Tax as per Section 10 Lesson4 Agricultural income and tax QUESTIONS II HEADS OF INCOME 49 170 Lesson1 Salary Lesson2 House Property Lesson3 Business or Profession Lesson4 Capital Gains Lesson5 Other Sources QUESTIONS DEDUCTIONS u s 80C to 80U Lesson1 Clubbing of Incomes Lesson2 Set Off and carry forward of losses QUESTIONS Deduction of Tax at Source Lesson1 Payment of Advance Tax Lesson2 Assessment of Individuals Lesson 3 Filing of Returns QUESTIONS III IV References and Further Readings 264 171 217 218 264 3 UNIT 1 CHAPTER 1 Introduction of Taxation system in India The Taxation Structure of the country can play a very important role in the working of our economy Some time back the emphasis was on higher rates of Tax and more incentives But recently the emphasis has shifted to Decrease in rates of taxes and withdrawal of incentives While designing the Taxation structure it has to be seen that it is in conformity with our economic and social objectives It should not impair the incentives to personal savings and investment flow and on the other hand it should not result into decrease in revenue for the State In our present day economy structure Income Tax plays a vital role as a source of Revenue and a measure of removal economic disparity Our Taxation structure provides for Two types of Taxes DIRECT and INDIRECT Income Tax Wealth Tax and Gift Tax are Direct Taxes whereas Sales Tax and Excise Duties are Indirect Taxes HISTORY The Income Tax was introduced in India for the first time in 1860 by British rulers following the mutiny of 1857 The period between 1860 and 1886 was a period of experiments in the context of Income Tax This period ended in 1886 when first Income Tax Act came into existence The pattern laid down in it for levying of Tax continues to operate even to day though in some changed form In 1918 another Act Income Tax Act 1918 was passed but it was short lived and was replaced by Income Tax Act 1922 and it remained in existence and operation till 31st On the recommendation of Law Commission Direct Taxes Enquiry Committee and in consultation with Law Ministry a Bill was framed This Bill was referred to a select committee and finally passed in Sept 1961 This Act came into force from 1st April 1962 in whole of the March 1961 PRESENT ACT 4 country Income Tax Act 1961 is a comprehensive Act and consists of 298 Sections Sub Sections running into thousands Schedules Rules Sub Rules etc and is supported by other Acts and Rules This Act has been amended by several amending Acts since 1961 The Annual Finance Bills presented to Parliament along with Budget make far reaching amendments in this Act every year 5 MEANING OF TAX MANAGEMENT A Business who stays aloof of tax matters cannot remain competitive Tax laws are an economic reality in the Business world A Tax Dollar is just as real one derived from other source Tax Management is now an integral part of business management It involves not only due compliance of law in timely and regular manner but also arranging the affairs in such a manner that it reduces the tax liability burden Specifics are Filling of Return Maintenance of Accounts Getting the Accounts Audited Complying with the notices of Income Tax Department Payment of Advance Tax Timely deduction of Tax at Source and its payment PERSON Section 2 31 The word Person is a very wide term and embraces in itself the following Individual It refers to a natural human being whether male or female minor or major Hindu Undivided Family HUF It is a relationship created due to operation of Hindu Law The Manager of HUF is called Karta and its member is called Coparceners Company It is an artificial person registered under Indian Companies Act 1956 or any Firm It is an entity which comes into existence as a result of partnership agreement The Income Tax accepts only these entities as Firms which are accessed as Firms under other Law Section 184 of the Act Association of Persons AOP or Body of Individuals BOI Co operative societies MARKFED NAFED etc are the example of such persons When persons combine together to carry on a joint enterprise and they do not constitute partnership under the ambit of law they are assessable as an Association of Persons An A O P can have firms companies associations and individuals as its members A Body of Individual B O I cannot have non individuals as its members Only natural human being can be members of a Body of Individuals 6 Local Authority Municipality Panchayat Cantonment Board Port Trust etc are called Local Authority Artificial Judicial Person Statutory Corporations like Life Insurance Corporation University etc are called Artificial Judicial Persons These are seven categories of person chargeable to tax under the Act The aforesaid definition is inclusive and not exhaustive Therefore any person not falling in the above mentioned seven categories may still fall in the four corners of the term Person and accordingly may be liable to tax under Sec 4 Determine the status of the following 9 X and Y who are legal heirs of Z Z died in 1995 and X and Y carry on his business 1 Delhi University 2 Microsoft Ltd 3 Delhi Municipal Corporation 4 Swayam Education Pvt Ltd 5 Axis Bank Limited 6 ABC Group Housing Co operative Society 7 DC Co firm of Mr D and Mr C 8 A joint family of Mr D Mrs D and their sons without entering into partnership Solutions 1 Artificial Judicial Person 2 a Company 3 a local authority 4 a company 5 a company 6 an association of person 7 a firm 8 a Hindu Undivided Family 9 An association of persons ASSESSEE Section 2 7 7 Assessee means a person by whom any tax or any other sum of money is payable under this Act and includes the following i Every person in respect ii A person who is iii Every person who is of whom any proceeding deemed to be an assessee deemed to be an assessee in under the Income tax under any provisions of this default under any provisions of Act has been taken Act i e a person who is this Act A person is said to be ii treated as an assessee This an assessee in default if he fails a for the assessment of his would include the legal to comply with the duties income or the income of any
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