Basics– Income Tax

Community

E-TEN CA

Basics– Income Tax

Author: RishuArya

Quick Review of the Chapter

Income Tax Law includes

The Income-tax Act, 1961 (amended up-to-date)
The Income-tax Rules, 1962 (amended up-to-date)
Circulars, clarifications issued from time to time by the CBDT
Judicial decisions

Sec 2 (31) Person includes -

An Individual
A Hindu Undivided Family (HUF)
A Company
A Firm
An AOP or a BOI, whether incorporated or not
A local authority
Every artificial juridical person not falling within any of the preceding sub-clauses.

Name	Income	Status	Basic Tax	Surcharge	EC & SHEC
Delhi University	Nil
Essen Paints Pvt. Ltd	Rs. 50 lakhs
Punjab Bank Ltd	Rs. 200 lakhs
A and B are legal heirs of C. C died in 2007 and A and B carry on his business without entering into a partnership.	Rs. 1,00,000
Shri Krishna Enterprises, a firm consisting of S, K and P	Rs. 100 lakhs
A joint family consisting of P, Mrs. P and their son S.	Rs. 5 lakhs
Municipal Corporation of Delhi.	Nil
Mr. Sachin	Rs. 50,000
Mr. Atal who's age is 72 years	Rs. 3,00,000
Mrs. A who's age is 80 years	Rs. 2,00,000
Ms. Rani	Rs. 5,00,000

Assessment year means the period of 12 months commencing on the first day of April every year.

Previous year means the previous year as defined in section 3. According to section 3, previous year means the financial year immediately preceding the assessment year.

(Note: First previous year for a business/profession newly set-up during the financial year or for a new source of income, starts from the date of setting up of the business or from the date the new source came into existence)

Assessment Year Income Earned	Date of earning	Previous Year	Assessment Year
Rs. 1,00,000	25^th July 2007
Rs. 10,000	10^th May 2008
Rs, 5,000	31^st March 2007
Rs. 8,000	1^st April 2007

Income of previous year is taxed in the assessment year but tax is to be deposited in the previous year in the form of advance tax except in the following case:

Shipping business of non-residents [Section 172]
Assessment of persons leaving India [Section 174]
Assessment of BOI or AOP formed for a particular event or purpose [Section 174A]
Assessment of persons likely to transfer property to avoid tax [Section 175]
Discontinued business [Section 176]

Income [Section 2(24)] See Annexure 1

Gross Total Income: As per section 14, all income shall, for purposes of Income-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 Profession
Capital Gains
Income from Other Sources

Aggregate of incomes computed under the above 5 heads, after applying clubbing provisions and making adjustments of set off and carry forward of losses, is known as Gross Total Income (GTI). [Section 80B(5)]

Total Income: The total income of an assessee is computed by deducting from the gross total income, all deductions permissible under Chapter VIA of the Income-tax Act i.e., deductions under sections 80C to 80U.

Answer the following:

Income-tax Act extends to:
- whole of India
- whole of India except Jammu & Kashmir
- whole of India except Sikkim
- whole of India except Jammu & Kashmir and Sikkim

Finance Bill becomes the Finance Act when it is passed by:
- the Lok Sabha
- both Lok Sabha and Rajya Sabha
- both Houses of Parliament and given the assent of the President
- both Houses of Parliament and given the assent of the Prime Minister/ Finance Minister

Out of the following items, tick the items which are revenue receipts:
- bonus shares received by a dealer of shares.
- money received by a tyre manufacturing company for sale of technical know how regarding manufacturing of tyres.
- interest from investments.
- a claim of Rs. 1,50,000 received from insurance company for loss of profits.
- annuity received from former employer.
- premium on issue of new shares.
- sales tax collected from the purchaser of goods.
- perquisites received by a professional during the course of carrying on profession.
- gift exceeding Rs. 50,000 from a relative.
- compensation received in respect of permanent disablement due to an accident.
- compensation received in respect of temporary disablement due to an accident.

From the following, tick the expenses which are treated as revenue expenditure
- An expenditure incurred in connection with the acquisition or installation of a fixed asset.
- An expenditure incurred in raising capital.
- Expenditure incurred for improving the profit earning capacity of an asset.
- Expenditure incurred for repairing an asset.
- Lumpsum payment made by a employer as a gratuity to the employee.
- Legal expenses incurred by a person in defending or maintaining his right or little to the property used for business.
- Expenditure incurred for purchase of goods for resale.
- Assessee took over the business of another & paid bonus to staff of that business in respect of period before takeover.
- Fee paid for increasing authorised capital of the company.
- Fee paid for issue of bonus shares.
- Expenditure incurred for boring tube well, water obtained from tube well not suitable.
- Advance paid for purchase of an asset, later on forfeited as the assessee did not wish to purchase that asset.
- Advance paid for purchase of goods for resale, later on forfeited as the assessee did not wish to purchase such goods.

A.O.P. should consist of:
- individuals only
- persons other than individuals only
- both the above

Body of individuals should consist of:
- individuals only
- persons other than individuals only
- both the above

'X', who is a famous singer, came to India from America for the first time on 26-1-2008. He gave many performances in India from which he got Rs. 1,00,000. When he was to return to America, the Income-tax Officer gave him a notice and asked him to pay Income-tax immediately. He said in his reply, 'My previous year ends on 31-3-2008 and my tax liability will be in the assessment year 2008-09.' What is your opinion in this regard?

'R', who has been permanently in India, migrated to USA on 18-11-2007. Explain how he will be taxed with regard to the income earned between 1-4-2007 and 18-11-2007.

A is 60 years old. His total income for the assessment year 2008-09 is Rs. 1,50,000. His tax liability shall be:
- Rs. 5,150/-
- Rs. 5,100/-
- Rs. 5,500/-
- Rs. 5,670/-