Fundamentals of Income tax

1. Bibhudutta Tripathy
INCOME TAX

2. Introduction of Income Tax Act 1961?
The Income Tax Act 1961 is the set of rules and regulations upon which the
Income Tax Department levies, administers, collects, and recovers taxes.
Concept of Income Tax
The concept of income under the Income Tax Act is broad, encompassing
earnings from various sources such as salary, business or profession, house
property, capital gains, and other residual sources. The Act classifies taxpayers
into different categories, such as individuals, Hindu Undivided Families (HUFs),
companies, and more, each having specific rules governing the computation of
taxable income.
Definition of Income Tax
Income tax is a tax charged on the annual income of an individual or business
earned in a financial year.
What is Income?
a monetary return whether received in cash or kind. The income tax
department does not make any distinction between temporary and
permanent income.
What is Tax?
an amount of money that a government requires people to pay according to their
income, the value of their property, etc., and that is used to pay for the things done
by the government.
What are the Different Types of Taxes in India?
In broader terms, there are two types of taxes namely, direct taxes and indirect
taxes. The implementation of both taxes differs. You pay some of them
directly, like the cringed income tax, corporate tax, wealth tax, etc., while you
pay some of the taxes indirectly, like sales tax, service tax, value added tax,
etc.

3. What is Direct Tax?
Direct tax is a type of tax levied on individuals or entities (corporate and non-
corporate) directly by the government. These taxes are imposed on the basis of
the taxpayer's ability to pay, meaning that those with higher incomes or more
valuable assets typically pay more in direct taxes. Direct Tax cannot get
transferred to any other person or entity.
What are the different types of Direct Taxes in India?
1) Income Tax
The Income Tax Act is also called the IT Act, 1961. The income taxed
by this act can be generated from any source such as profits received
from salaries and investments, owning a property or a house, a business,
etc.

4. 2) Wealth Tax
If the net wealth of an individual exceeds Rs. 30 lakhs, then 1% of the
exceeded amount is payable as a tax. It was put to an end in the budget
that was announced in 2015. Since then, it has been substituted with a
surcharge of 12% on individuals that generate an income of more than
Rs. 1 crore p.a. It is also applicable to companies which have generated
revenue of over Rs. 10 crores p.a.
3) Gift Tax
The Gift Tax Act, established in 1958, initially imposed a 30 percent tax
on gifts like shares, jewellery, and property. However, this tax was
discontinued in 1998. Under the current rules, gifts from family
members and local authorities are tax-exempt. Gifts from others
exceeding Rs. 50,000 are taxable in full.
4) Capital Gains Tax (CGT)
Capital gains tax is a tax on profits earned from the sale of assets, such
as stocks, bonds, real estate, or other investments. The CGT rate in India
depends on the holding period of the asset and the type of asset being
sold. For example, short-term capital gains (STCG) on equity shares are
taxed at 15%, while long-term capital gains (LTCG) on equity shares are
exempt from taxation.
5) Securities Transaction Tax (STT)
Securities Transaction Tax (STT) is a tax levied on the purchase and sale
of securities, such as stocks, mutual funds, and derivatives, on
recognized stock exchanges in India. The STT rate varies depending on
the type of security being traded. For example, the STT rate for equity
shares is 0.1%, while the STT rate for futures contracts is 0.005%.
6) Corporate Tax
Corporate tax is a direct tax levied on the profits of companies registered
in India. The current corporate tax rate in India is 30% for domestic
companies and 40% for foreign companies. There are also various
deductions and exemptions available to companies, which can reduce
their effective tax rate.

5. What is Indirect Tax?
The taxes levied on goods and services are referred to as indirect taxes.
They are different from direct taxes as they are not imposed on an
individual who shells out them directly to the Indian government, they
are, as an alternative, imposed on the products and an intermediary, the
individual selling the product, collects them. The most common
examples of indirect taxes are Sales Tax, Taxes levied on imported
goods, Value Added Tax (VAT), etc. Such taxes are imposed by
summating them with the price of the product or service that is likely to
push the price of the product up.
What are the different types of Indirect Taxes in India?
1) Sales Tax
Sales tax is a consumption tax levied on the sale of goods and
services. It is typically a percentage of the retail price of the item
being purchased. Sales tax is collected by the seller and then remitted
to the government.
2) Goods & Services Tax (GST)
GST is a consumption-based tax levied on goods and services at each
stage of the supply chain. It can be offset against the GST charged on
subsequent supply, using the tax credit method. GST is a significant
reform in India's indirect tax structure.
3) Value Added Tax (VAT)
VAT, or commercial tax, is imposed at all supply chain stages,
excluding zero-rated items like food and essential drugs. VAT is
imposed by state governments, each determining its own tax rates on
goods sold within the state.
4) Custom Duty
VAT, or commercial tax, is imposed at all supply chain stages,
excluding zero-rated items like food and essential drugs. VAT is
imposed by state governments, each determining its own tax rates on
goods sold within the state.

6. 5) Service Tax
Service tax is charged at a rate of 15%, and is applicable to services
provided by companies. Individual service providers pay when bills
are settled, while firms pay upon invoicing, regardless of bill
payment. Restaurants charge service tax on 40% of the total bill to
avoid ambiguity.
What is Assesses?
Assesses means a person liable for payment of taxes or any other sum of
money under the Income-tax Act.
What is Person?
For the purpose of charging Income-Tax, the term ‘person’ includes
Individual, Hindu Undivided Families (HUFs), Association of person
(AOPs), Body of Individuals (BOIs), Firms, LLPs, Companies, Local
authority and any artificial juridical person not covered under any of the
above.
What is Agricultural Income?
Agriculture income is the total revenue an individual or entity earns from
sources, including land farming, commercial produce from horticulture
land and buildings on identified agricultural land. Under the Income Tax
Act of 1961, section 2(1A) defines the agricultural revenue of an individual
or entity.
What is Previous Year?
The financial year immediately preceding the assessment year.
What is Assessment Year?
The Assessment Year is the 12 month-period that comes right after the
financial year. It is the period from April 1 to March 31, during which
revenue produced during the fiscal year is taxed. For example, the
Assessment Year for any revenue produced between April 1, 2022, and
March 31, 2023, would be 2023-24.
What is GST Council?
a constitutional body responsible for making recommendations
on issues related to the implementation of the Goods and
Services Tax (GST) in India.