basic concepts of the subject income tax law.

1. INCOMETAX LAW AND
PRACTICE
Basic Concepts

2. WHAT IS ATAX?
Tax is a fee charged by a government on a product,
income or activity.
There are two types of taxes . Direct taxes and indirect
taxes.

3. DIRECT AND INDIRECTTAX

4. WHY ARETAXES LEVIED?
• The reason for levy of taxes is that they
constitute the basic source of revenue to the
government.
• Revenue so raised is utilised for meeting the
expenses of government like defence,
provision of education, health-care,
infrastructure facilities like roads, dams etc.

5. OVERVIEW OF INCOME-TAX LAW
IN INDIA
Income-tax is the most significant direct tax. The income-tax law
in India consists of the following components.
• Income Tax Act, 1961
• Annual Finance Acts
• Income Tax Rules, 1962
• Circulars/Notifications
• Legal decisions of Courts

6. Income tax Act, 1961
The levy of income-tax in India is governed by the Income-tax Act,
1961.
This Act came into force on 1st April, 1962.
The Act contains 298 sections and XIV schedules.
These undergo change every year with additions and deletions
brought about by the Finance Act passed by Parliament.
In pursuance of the power given by the Income-tax Act, rules have
been framed to facilitate proper administration of the Income-tax
Act.

7. Annual Finance Act
Every year, the Finance Minister of the Government of India presents
the Budget to the Parliament.
Part A of the budget speech contains the proposed policies of the
Government in fiscal areas.
Part B of the budget speech contains the detailed tax proposals.
In order to implement the above proposals, the Finance Bill is
introduced in the Parliament.
Once the Finance Bill is approved by the Parliament and gets the
assent of the President, it becomes the Finance Act.

8. Income tax Rules, 1962
The administration of direct taxes is looked after by the
Central Board of DirectTaxes (CBDT).
The CBDT is empowered to make rules for carrying out the
purposes of the Act.
For the proper administration of the Income-tax Act, the
CBDT frames rules from time to time.These rules are
collectively called Income-tax Rules, 1962. It is important
to keep in mind that along with the Income-tax Act, these
rules should also be studied.

9. Circulars and Notifications
Circulars are issued by the Central Board DirectTaxes (CBDT) from
time to time to deal with certain specific problems and to clarify
doubts regarding the scope and meaning of the provisions.
These circulars are issued for the guidance of the officers and/or
assessees.
The department is bound by the circulars. While such circulars are not
binding the assessees they can take advantage of beneficial circulars.

10. Case Laws
The study of case laws is an important and unavoidable part
of the study of income-tax law.
It is not possible for Parliament to conceive and provide for
all possible issues that may arise in the implementation of
any Act. Hence the judiciary will hear the disputes between
the assessees and the department and give decisions on
various issues.
The Supreme Court is the Apex Court of the country and the
law laid down by the Supreme Court is the law of the land.
The decisions given by various High Courts will apply in the
respective states in which such High Courts have jurisdiction.

11. INCOMETAX ACT, 1961
 Brought into force from 1.4.1962
 Applies to the whole of India including Jammu
&Kashmir

12. BASIS OF CHARGEOF INCOMETAX
• Income tax is an annual tax on income
• Income of previous year is taxed in the next following assessment
year at the rates applicable to that assessment year.
• Tax rates are fixed by the Annual Finance Act
• Tax is charged on every person defined in sec2(31)
• The tax is charged on the total income of every person computed
in accordance with the provisions of this act
• Income tax is to be deducted at source or paid in advance as
prescribed under the provisions of the act.
•

13. IMPORTANT DEFINITIONS
INCOME
 Income tax Act has not defined the term income. It is an
inclusive definition
 Income generally includes the revenue receipts from outside
 There are some important rules regarding income which are
discussed as follows

14. RULES REGARDING INCOME
 Definite source of income
 Not necessary that the income may be received regularly and periodically
 Income can be in monetary or non monetary form
 Income may be temporary or permanent
 Disputed income
 Reimbursement of expenses is not income
 Accrued but not received income is to be treated as income
 Income may be in plus or minus

15. GROSSTOTAL INCOME
The aggregate of income under the following heads is known as gross
total income:
 Income from salaries
 Income from House property
 Profits and gains of business or profession
 Income from capital gains
 Income from other sources
the income from each head is computed after making deductions
permissible under that head

16. PERSON
Person includes the following:
 An individual
 A hindu undivided family
 A company
 A firm
 An association of persons or body of individuals
 A local authority
 An artificial juridical person

17. ASSESSEE
 ORDINARY ASSESSEE
 DEEMED ASSESSEE
 ASSESSEE IN DEFAULT

18. ORDINARY ASSESSEE
An ordinary assessee means a person:
 Who is liable to pay any tax or
 Who is liable to pay any other money under this act e.g. interest,
penalty etc or
 In respect of whom any proceedings under the act have been taken
for the assessment of his income or
 In respect of whom any proceeding under the act has been taken
for the assessment of the loss sustained by him or
 In respect of whom any proceeding under the act has been taken
for the refund due to him

19. DEEMED ASSESSEE
A person who is liable to pay tax on the income of some other person
is called deemed or representative assessee. For example:
 After the death of a person his legal representative will be treated
as his deemed assessee
 A person representing a foreigner, minor or person of unsound
mind will be treated as an assessee for the income of such
foreigner, minor or person of unsound mind

20. ASSESSEE IN DEFAULT
• When a person is responsible for fulfilling an obligation under the income
tax act and he fails to do so , he is called an assessee in default. For
example:
• Every DDO (Drawing & Disbursing officer) has a legal obligation to deduct
the tax at source from the income of the people working under him and to
deposit the amount in the Government treasury. If he fails to deduct the
tax or after deducting it fails to deposit it in Government treasury, he will
be treated as assessee in default under the act and liable to prescribed
punishment.

21. ASSESSMENTYEAR
• Assessment year means a period of 12 months commencing on the first day
of April every year and ending on 31st March of the next year.
• An assessee is liable to pay tax and file the return of income of the
previous year in the following financial year( assessment year)
• For the purposes of the students the assessment year will be 2023 - 24.

22. PREVIOUSYEAR
• Generally speaking previous year is the financial year preceding the
assessment year.
• The financial year ending on 31st March will be the uniform previous year
for all the assessees and for all sources of income
• For a newly set up business or for a newly created source of income the
P.Y will begin from the date of starting of business or from the date of
coming into existence of the new source of income to the end of the said
financial year. In such situation the first PY may be less than 12 months.
• A financial year is both a previous year as well as an assessment year.

23. EXAMPLES
An assessee commences his business on:
1.07.2022,
1.10.2022,
1.01.2023
In each case what will be his AY and what period will be treated
as the PY for the concerned assessment year?

24. Taxation of PYs income in the AY:
exceptions to the rule
The Pys income is taxed in the same year in the following cases:
 Income of non resident assessee from shipping business
 Income of persons leaving india
 Transfer of property to avoid tax
 On discontinuance of a business or profession

25.  TAX AVOIDANCE
 TAX EVASION
 TAX PLANNING

26. TOTAL INCOME ANDTAX PAYABLE
Income-tax is levied on an assessee’s total income. Such total income has to be
computed as per the provisions contained in the Income-tax Act, 1961. Let us go
step by step to understand the procedure of computation of total income for the
purpose of levy of income-tax.
• Step 1 Determination of residential status
• Step 2 Classification of income under different heads
• Step 3 Exclusion of income not chargeable to tax
• Step 4 Computation of income under each head
• Step 5 Clubbing of income of spouse, minor child etc.
• Step 6 Set-off or carry forward and set-off of losses
• Step 7 Computation of GrossTotal Income.
• Step 8 Deductions from GrossTotal Income
• Step 9 Total income
• Step 10 Application of the rates of tax on the total income
• Step 11 Surcharge
• Step 12 Education cess and secondary and higher education cess
• Step 13 Advance tax and tax deducted at source

27. Thank you