Introduction to Income Tax Act

1. Presented by
Banumathi . N
Gayathri Devi . S

2. Index
Income Tax Act in India
Important Definitions under Income
Tax Act
Income Tax Rules
Capital Vs Revenue
Exempted Incomes from Income Tax

3. Income Tax Act in India:
The income-tax act, 1961 is the
charging Statute of Income tax in India.
It provides for levy, administration,
collection and recovery of Income Tax.
The Government of India brought a
draft statute called the “Direct Taxes
Code” intended to replace the Income
Act,1961 and the Wealth Tax Act,1957.
Date commenced: 1 April 1962
Enacted by : Parliament of India.

4. Important Tax Definitions under Income Tax Act:
Income Tax:
It is the tax that is collected by Central Government for
each financial year levied on total taxable income of an
assesse during the previous year. Nov 15,2018
The Income Tax Department is a Government agency
undertaking direct tax collection of the Government of
India. It functions under the Department of Revenue of
the Ministry of Finance. Income Tax Department is
headed by the apex body Central Board of Direct Taxes.
As we all know that the Income Tax Act, 1961
provides for levy of income tax on every person, subject
to rules contained therein.
16 in accordance with the provisions of section 203 of
the Income-tax Rules, 1962.

5. Capital and Revenue receipts and Expenditure:
Receipts which are non-recurring (not received
again and again) by nature and whose benefits is
enjoyed over a long period are called “Capital
Receipts”, e.g. money brought into the business by the
owner (capital invested), loan from bank, sale
proceeds of fixed assets etc. Capital receipt is shown
on the liabilities side of the Balance Sheet receipts
which are recurring (received again and again) by
nature and which are available for meeting all day to
day expenses (revenue expenditure) of a business
concern are known as “Revenue receipts”, e.g. sale
proceeds of goods, interest received, commission
received, rent received, dividend received etc.

6. Income Tax Rules:
Rule-1
Short title and commencement
Rule-2
Definitions
Rule-2A
Limits for the purpose of section 10(13A)
Rule-2B
Conditions for the purpose of section 10(5)
Rule-2BA
Guidelines for the purpose of section 10(10C)
Rule-2BB
Prescribed allowances for the purposes of clause (14) of section10
Rule-2BBA
Circumstances and conditions for the purposes of clause (19) of section 10
Rule-2BBB
Percentage of Government grant for considering university , hospital etc. as
substantially financed by the Government for the purposes of clause (23C) of section 10.
Rule-2BC
Amount of annual receipts for the purposes of sub-clauses(iii ad) and (iii ae) of
clause (23C) of section.

7. Distinction between Capital Receipt and Revenue Receipt:
S.NO Revenue Receipt Capital Receipt
1. It has short-term effect. The benefit is
enjoyed within one accounting period.
It has long-term effect. The benefit is
enjoyed for many years in future.
2. It occurs repeatedly. It is recurring and
Regular in nature.
It does not occur again and again. It is
Non recurring and irregular in nature.
3. It is shown in profit and loss account on the
credit side.
It is shown in the Balance Sheet on the
liability side.
4. It does not produce capital receipt. Capital receipt, when invested,
produces revenue receipt e.g. when
capital is invested by the owner, business
gets revenue receipt ( i.e. sale proceeds
of goods etc.).
5. This does not increase or decrease the
value of asset or liability.
The capital receipt decrease the value
of asset or increases the value of liability
e.g. sale of a fixed asset, loan from bank
etc.
6. Sometimes, expenses of capital nature are
to be incurred for revenue receipt, e.g.
purchase of shares of a company is capital
expenditure but dividend received on
Sometimes expenses of revenue nature
are to be incurred for such receipt e.g.
on obtaining loan (a capital receipt)
interest is paid until its repayment.

8. Difference between Capital Expenditure and Revenue Expenditure
S. NO Revenue Expenditure Capital Expenditure
1. Its effect is temporary, i.e. it is not exhausted
within the current accounting year-its
benefit is received for a number of years in
future.
Its effect is long-term, i.e. it is not exhausted within
the current accounting year-its benefit is received
for a number of years in future.
2. Neither an asset is acquired nor is the value
of an asset increased.
An asset is acquired or the value of an existing asset
is increased.
3. It has no physical existence because it is
incurred on items which are used by the
business.
Generally it has physical existence except
intangible assets.
4. It is recurring and regular and it occurs
repeatedly.
It does not occur again and again. It is Non
recurring and irregular.
5. This expenditure helps to maintain the
business.
This expenditure improves the position of the
business.
6. The whole amount of this expenditure is
shown in trading P&L A/c or income
statement.
A portion of this expenditure (depreciation on
assets) is shown in trading & P & L A/c and the
balance are shown in the balance sheet on asset
side.
7. It does not appear in the balance sheet. It appears in the balance sheet until its benefit is
fully exhausted.

9. Exempted incomes from Income Tax:
What is Exempted Income?
Exempt income refers to certain
types or amounts of income not subject to
federal income tax. Some types of income
may also be exempt from state income tax.
This article discusses in brief about
income which are exempt from Tax under
income Tax, 1961 and covers… TAX-FREE
INCOMES

10. Computation of total incomes:
Particulars OR NOR NR
Income received or deemed to be received in India it is
immaterial whether it is earned in India are in a foreign country.
Taxable Taxable Taxable
Income earned in India whether received, payed in India or
outside India.
Taxable Taxable Taxable
Income earned and received outside India from business
control or profession setup in India. Income may or may not be
remined to India.
Taxable Taxable Taxable
Income earned or received outside India from a business or
profession setup outside India.
Taxable Non-Taxable Non-Taxable
Income earned and received outside India from any other
sources.(Except income under iii)
Taxable Non-Taxable Non-Taxable
Income earned and received outside India in the year
preceding to previous year in question and if the same is
reminded during the current previous year.
Non-Taxable Non-Taxable Non-Taxable

11. THANK YOU