Income tax is a direct tax levied annually on a person's income by the central government of India. Key features include: - It is levied according to the constitution on income, gains or profits earned in a year (assessment year) by individuals and entities. - The tax is administered by the central government and applies to income earned in India as well as abroad in some cases. - Agricultural income has a specific definition that excludes certain types of income derived from agricultural activities and land. An assessee refers to any person who is liable to pay tax, interest or penalties under the Income Tax Act. This includes individuals being assessed, their representatives, and those deemed as assessees

1. Definitions

2. Income tax
 Tax on income, gain or profits earned by a person
 Individual or entity

3. Features of income tax
 Levied as per constitution
 Levied by central government
 Direct tax
 Annual tax
 Tax on person
 Tax on income
 Income of PY is assessable in AY
 Charged at prescribed rates
 Administered by central government
 Applicability

4. History
 First time in 1860 till 1857
 1860-1886 experiment period
 1886 income tax act
 1918 another tax
 1922 to 1961
 From 1961 till date

5. “Agricultural income"means—
(a) any rent or revenue derived from land which is situated in India and is used
for agricultural purposes;
(b) any income derived from such land by—
(i) agriculture; or
(ii) the performance by a cultivator or receiver of rent-in-kind of any process
ordinarily employed by a cultivator or receiver of rent-in-kind to render the
produce raised or received by him fit to be taken to market; or
(iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or
received by him, in respect of which no process has been performed other than
a process of the nature described in paragraph (ii) of this sub-clause;
(c) any income derived from any building owned and occupied by the receiver
of the rent or revenue of any such land, or occupied by the cultivator or the
receiver of rent-in-kind, of any land with respect to which, or the produce of
which, any process mentioned in paragraphs (ii) and (iii) of sub-clause (b) is
carried on :

6.  Provided that—
 (i) the building is on or in the immediate vicinity of the land, and is a building which the receiver of the rent or
revenue or the cultivator, or the receiver of rent-in-kind, by reason of his connection with the land, requires as a
dwelling house, or as a store-house, or other out-building, and
 (ii) the land is either assessed to land revenue in India or is subject to a local rate assessed and collected by officers of
the Government as such or where the land is not so assessed to land revenue or subject to a local rate, it is not
situated—
 (A) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality,
municipal corporation, notified area committee, town area committee, town committee or by any other name) or a
cantonment board and which has a population of not less than ten thousand; or
 (B) in any area within the distance, measured aerially,—
 (I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in
item (A) and which has a population of more than ten thousand but not exceeding one lakh; or
 (II) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in
item (A) and which has a population of more than one lakh but not exceeding ten lakh; or
 (III) not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to
in item (A) and which has a population of more than ten lakh.
 Explanation 1.—For the removal of doubts, it is hereby declared that revenue derived from land shall not include and
shall be deemed never to have included any income arising from the transfer of any land referred to in item (a) or item
(b) of sub-clause (iii) of clause (14) of this section.
 Explanation 2.—For the removal of doubts, it is hereby declared that income derived from any building or land referred
to in sub-clause (c) arising from the use of such building or land for any purpose (including letting for residential
purpose or for the purpose of any business or profession) other than agriculture falling under sub-clause (a) or sub-
clause (b) shall not be agricultural income.
 Explanation 3.—For the purposes of this clause, any income derived from saplings or seedlings grown in a nursery shall
be deemed to be agricultural income.
 Explanation 4.—For the purposes of clause (ii) of the proviso to sub-clause (c), "population" means the population
according to the last preceding census of which the relevant figures have been published before the first day of the
previous year;

7.  Provided that—
 (i) the building is on or in the immediate vicinity of the land, and is a building which the receiver of the rent or
revenue or the cultivator, or the receiver of rent-in-kind, by reason of his connection with the land, requires as a
dwelling house, or as a store-house, or other out-building, and
 (ii) the land is either assessed to land revenue in India or is subject to a local rate assessed and collected by officers of
the Government as such or where the land is not so assessed to land revenue or subject to a local rate, it is not
situated—
 (A) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality,
municipal corporation, notified area committee, town area committee, town committee or by any other name) or a
cantonment board and which has a population of not less than ten thousand; or
 (B) in any area within the distance, measured aerially,—
 (I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in
item (A) and which has a population of more than ten thousand but not exceeding one lakh; or
 (II) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in
item (A) and which has a population of more than one lakh but not exceeding ten lakh; or
 (III) not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to
in item (A) and which has a population of more than ten lakh.
 Explanation 1.—For the removal of doubts, it is hereby declared that revenue derived from land shall not include and
shall be deemed never to have included any income arising from the transfer of any land referred to in item (a) or item
(b) of sub-clause (iii) of clause (14) of this section.
 Explanation 2.—For the removal of doubts, it is hereby declared that income derived from any building or land referred
to in sub-clause (c) arising from the use of such building or land for any purpose (including letting for residential
purpose or for the purpose of any business or profession) other than agriculture falling under sub-clause (a) or sub-
clause (b) shall not be agricultural income.
 Explanation 3.—For the purposes of this clause, any income derived from saplings or seedlings grown in a nursery shall
be deemed to be agricultural income.
 Explanation 4.—For the purposes of clause (ii) of the proviso to sub-clause (c), "population" means the population
according to the last preceding census of which the relevant figures have been published before the first day of the
previous year;

8. Person 2(31)
 "Person " includes—
 (i) an individual,
 (ii) a Hindu undivided family,
 (iii) a company,
 (iv) a firm,
 (v) an association of persons or a body of individuals, whether incorporated or
not,
 (vi) a local authority, and
 (vii) every artificial juridical person, not falling within any of the preceding
sub-clauses.
 Explanation.—For the purposes of this clause, an association of persons or a
body of individuals or a local authority or an artificial juridical person shall be
deemed to be a person, whether or not such person or body or authority or
juridical person was formed or established or incorporated with the object of
deriving income, profits or gains;

9. Assessee- 2(7)
 "Assessee" means a person by whom any tax or any other
sum of money is payable under this Act, and includes—
 (a) every person in respect of whom any proceeding under
this Act has been taken for the assessment of his income or
assessment of fringe benefits or of the income of any other
person in respect of which he is assessable, or of the loss
sustained by him or by such other person, or of the amount
of refund due to him or to such other person ;
 (b) every person who is deemed to be an assessee under
any provision of this Act ;
 (c) every person who is deemed to be an assessee in default
under any provision of this Act ;

10. Types of assesse
Assessee is person who liable to pay Tax, Interest, or penalty
under the Income Tax Act and includes
 every person in respect of whom any proceeding under this
Act has been taken for the assessment of his income or
assessment of fringe benefits or of the income of any other
person in respect of which he is assessable, or of the loss
sustained by him or by such other person, or of the amount
of refund due to him or to such other person;
 every person who is deemed to be an assessee under any
provision of this Act;
 every person who is deemed to be an assessee in default
under any provision of this Act.

11.  It includes
 Any person against whom some proceeding under this
act are going on. It is immaterial whether any tax or
other amount is payable by him or not.
 Any person who has sustain loss and has filed return
loss u/s 139(3)
 Any person by whom some amount of interest tax paid
or penalty is payable under this act
 Any person who entitled to this act

12. Representative Assessee or
Deemed Assessee
 A person may not be liable for his own income only for
his own income but also on the income of other person
é.g. Guardians of minors or lunatics, agents of the non
residence etc. In such case the person is responsible
for the Assessment of income of such person are called
Representative Assessees , such person is deemed to be
assessee .

13.  i) In case of a deceased person who dies after writing
his will the executors of the property of deceased are
deemed as assessee.
 ii) In case a person dies intestate (without writing his
will) his eldest son or other legal heirs are deemed as
assessee.
 iii) In case of a minor, lunatic or idiot having income
taxable under Income-tax Act, their guardian is
deemed as assessee.
 iv) In case of a non-resident having income in India,
any person acting on his behalf is deemed as assessee.

14. Assessee in Default

 A person is deemed to be an assessee-in-default if he is
fails to fulfill his statutory paying salary or person who
is paying Intrest it is their duty to deduct tax at source
and deposit the amount of tax so collected in the
treasury. If he fails to deduct tax at source or deduct
tax but does not deposited it in the treasury he is
known as assessee in default.

15. Income – 2 (24)
 Definition of ‘Income’ under S. 2(24) of Income Tax Act, 1961
 As per S.2(24) of the Income Tax Act, 1961, unless the context otherwise requires, the term “income” includes-
 (i) profits and gains;
 (ii) dividend;
 (iia) voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution
established wholly or partly for such purposes or by an association or institution referred to in clause (21) or clause (23), or by a
fund or trust or institution referred to in sub-clause (iv) or sub-clause (v) or by any university or other educational institution
referred to in sub-clause (iiiad) or sub-clause (vi) or by any hospital or other institution referred to in sub-clause (iiiae) or sub-
clause (via) of clause (23C) of section 10 or by an electoral trust.
 Explanation: For the purposes of this sub-clause, “trust” includes any other legal obligation.
 (iii) the value of any perquisite or profit in lieu of salary taxable under clauses (2) and (3) of section 17;
 (iiia) any special allowance or benefit, other than perquisite included under sub-clause (iii), specifically granted to the assessee
to meet expenses wholly, necessarily and exclusively for the performance of the duties of an office or employment of profit;
 (iiib) any allowance granted to the assessee either to meet his personal expenses at the place where the duties of his office or
employment of profit are ordinarily performed by him or at a place where he ordinarily resides or to compensate him for the
increased cost of living;
 (iv) the value of any benefit or perquisite, whether convertible into money or not, obtained from a company either by a director
or by a person who has a substantial interest in the company, or by a relative of the director or such person, and any sum paid
by any such company in respect of any obligation which, but for such payment, would have been payable by the director or
other person aforesaid;
 (iva) the value of any benefit or perquisite, whether convertible into money or not, obtained by any representative assessee
mentioned in clause (iii) or clause (iv) of sub-section (1) of section 160 or by any person on whose behalf or for whose benefit
any income is receivable by the representative assessee (such person being hereafter in this sub-clause referred to as the
“beneficiary”) and any sum paid by the representative assessee in respect of any obligation which, but for such payment, would
have been payable by the beneficiary;
 Explanation: For the purposes of this sub-clause-

16. Income
 (v) any sum chargeable to income-tax under clauses (ii) and (iii) of section 28 or section 41 or section
59;
 (va) any sum chargeable to income-tax under clause (iiia) of section 28;
 (vb) any sum chargeable to income-tax under clause (iiib) of section 28;
 (vc) any sum chargeable to income-tax under clause (iiic) of section 28;
 (vd) the value of any benefit or perquisite taxable under clause (iv) of section 28;
 (ve) any sum chargeable to income-tax under clause (v) of section 28;
 (vi) any capital gains chargeable under section 45;
 (vii) the profits and gains of any business of insurance carried on by a mutual insurance company or
by a co-operative society, computed in accordance with section 44 or any surplus taken to be such
profits and gains by virtue of provisions contained in the First Schedule;
 (viia) the profits and gains of any business of banking (including providing credit facilities) carried on
by a co-operative society with its members;
 (viii) [Omitted]
 (ix) any winnings from lotteries, crossword puzzles, races including horse races, card games and other
games of any sort or from gambling or betting of any form or nature whatsoever.
 (i) “lottery” includes winnings from prizes awarded to any person by draw of lots or by chance or in
any other manner whatsoever, under any scheme or arrangement by whatever name called;
 (ii) “card game and other game of any sort” includes any game show, an entertainment programme on
television or electronic mode, in which people compete to win prizes or any other similar game;

17. Income
 (x) any sum received by the assessee from his employees as contributions to any provident fund or superannuation
fund or any fund set up under the provisions of the Employees’ State Insurance Act, 1948 (34 of 1948), or any other
fund for the welfare of such employees;
 (xi) any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy.
 Explanation: For the purposes of this clause, the expression “Keyman insurance policy” shall have the meaning
assigned to it in the Explanation to clause (10D) of section 10.
 (xii) any sum referred to in clause (va) of section 28;
 (xiii) any sum referred to in clause (v) of sub-section (2) of section 56;
 (xiv) any sum referred to in clause (vi) of sub-section (2) of section 56;
 (xv) any sum of money or value of property referred to in clause (vii) or clause (viia) of sub-section (2) of section 56;
 (xvi) any consideration received for issue of shares as exceeds the fair market value of the shares referred to in clause
(viib) of sub-section (2) of section 56;
 (xvii) any sum of money referred to in clause (ix) of sub-section (2) of section 56;
 *(xviia) any sum of money or value of property referred to in clause (x) of sub-section (2) of section 56;*
 (xviii) assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or
reimbursement (by whatever name called) by the Central Government or a State Government or any authority or body
or agency in cash or kind to the assessee **[other than,—
 (a) the subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset
in accordance with the provisions of Explanation 10 to clause (1) of section 43; or
 (b) the subsidy or grant by the Central Government for the purpose of the corpus of a trust or institution established by
the Central Government or a State Government, as the case may be]**;
 * inserted by FA 2017, applicable w.e.f. 1 Apr. 2017.

18. Heads of Income [Section-14 ]
 Section-14 of Income-tax Act 1961 provides for the computation of
total income of an assessee which is divided under five heads of
income. Each head of income has its own method of computation.
 These five heads are
(i) Income from ‘Salaries’;
(ii) Income from House Property’;
(iii) Income from ‘Profits and Gains of Business or Profession’;
(iv) Income from ‘Capital Gains’; and
(v) Income from ‘Other Sources’.
Income from all these heads shall be computed separately according to
the provisions given in the Act. Income computed under these heads
shall be aggregated after adjusting past and present losses and the total
so arrived at is known as ‘Gross Total Income’.

19. After allowing these deductions the figure which we
arrive at is called ‘Total Income’ and on this figure tax
liability is computed at the prescribed rates.
These five heads of income are water tight
compartments. Income from one source of Income,
which is to be included in a particular head, cannot be
included in any other head. Each head of income has its
own deductions. After computing income from various
sources of income within a particular head its own
deductions are allowed and thus we arrive at income
from that head.

20. Gross Total Income(GTI)
[Section-80B (5) ]

 Section 14 of the Act provides that for the purpose of charge of Income tax and
computation of total income, all incomes shall be classified under following five heads of
income
 (i) Income under the head “Salaries”.
 (ii) Income under the head “House Property”.
 (iii) Income under the head “Profits and gains of Business or Profession”.
 (iv) Income under the head “Capital Gains”.
 (v) Income under the head “Other Sources”.
 After aggregating income under various heads (Duly applying clubbing provisions),
losses are adjusted and the resultant figure is called “Gross Total Income” (GTI). ‘Gross
Total Income’ may also be understood as the total income of an assessee before making
any deduction under chapter VIA i.e.,undersection 80C to 80U of the Act. Thus,
 G. T. I. = Salary Income + House Property Income + Business or Profession
Income+ Capital Gains +Other Sources Income + Clubbing of Income - Set-off of
Losses

21. Total Income [Section 2(45)]
 Total Income [Section 2(45)]
‘Total income’ means the total amount of income
referred to in section 5, computed in the manner
laid down in this Act.
 In other words, ‘Total Income’ means income
remaining after allowing deductions under
Chapter VIA (i.e., U/s 80C to 80U) from Gross
Total Income. It is important to note that income
tax is charged on total income at prescribed
rate(s).

22. Rounding off
 Rounding off of Total Income [Section 288A]
Total income or total taxable income of the assessee shall
be rounded-off to the nearest multiple of 10,i.e., if the last
figure in the total income is five or more, it would be raised
to the next higher multiple of 10 and if the last figure of
total income is less than five, the same shall be reduced to
lower amount which should be a multiple of ten.
 Rounding off of Tax [Section 288B]
As per the Taxation Laws (Amendment) Act, 2005, (w.e.f.
July 13, 2006) the amount of tax payable including tax
deductible at source; advance tax, interest, fine, penalty,
the amount of any refund etc. shall be rounded to the
nearest rupee ten, i.e., last figure of rupee five or above
shall be raised to rupee ten whereas if the last figure is
upto rupee four and nintynine paisa, it shall be ignored.

23. Assessment Year [Section 2(9)]
 “Assessment year” means the period of 12 months commencing on the
1 St. day of April every year.
 In India, the Govt. maintains its accounts for a period of 12
months i.e. from 1st April to 31st March every year. As such it is known
as financial year. The income tax department has also selected same
year for its assessment procedure.
 The Assessment year is the financial year of the Govt. of India during
which income of a person relating to the relevant previous year is
assessed to tax. Every person who is liable to pay tax under this Act.
files return of income by prescribed dates. These returns are processed
by the income tax department officials and officers. This processing is
called assessment. Under this income returned by the assessee is
checked and verified.
 Tax is calculated and compared with the amount paid and assessment
order is issued. The year in which whole of this process is undertaken is
called assessment year.

24. Previous Year
[Section 2(34) r.w. Section 3]
 The term previous year is very important because it is the
income earned during previous year which is to be assessed to
tax in the assessment year.
 As the word ‘Previous’ means ‘coming before’, hence it can be
simply said that the previous year is the financial year preceding
the assessment year e.g. for assessment year 2018-19 the previous
year should be the financial year ending on 31st March 2018.
 In simple words, it may be said that the year in which income is
earned is called previous year and the next year in which such
income is computed and put to tax is known as assessment year:
For example, income earned by an assessee in the previous year
2017-18 is taxable in the assessment year relevant to the previous
year 2017-18 and so it is taxable in the assessment year 2018-19.

25.  The simple rule is that the income of a previous year is taxed in its
relevant assessment year subject to certain exceptions.
 (a) Previous year in case of a continuing business. It is the
financial year preceding the assessment year. As such for the
assessment year 2018-19, the previous year for a continuing business is
2017-18 i.e.1-4-2017 to 31-3-2018.
 (b) Newly set up business or profession. The assessee is free to set
up a new business or start a new profession on any day and the first
previous year in case of a newly set up business/profession or newly
created source of income shall be on the day it is set up and end on 31st
March next following. So the first previous year may be of 12 months or
less than 12 months but all subsequent previous years shall be of 12
months duration and always be starting on 1st April each year.
 (c) In case of a Newly created source of Income.In such case the
previous year shall be the period between the day on which such source
comes into existence and 31st. March next following .

26. 1. Income Tax Slab Rate for AY
2018-19 for Individuals:
 1.1 Individual (resident or non-resident), who is of the
age of less than 60 years on the last day of the relevant
previous year:
 Taxable income Tax Rate
 Up to Rs. 2,50,000 Nil
 Rs. 2,50,000 to Rs. 5,00,000 5%
 Rs. 5,00,000 to Rs. 10,00,000 20%
 Above Rs. 10,00,000 30%

27. Resident senior citizen
 1.2 Resident senior citizen, i.e., every individual, being
a resident in India, who is of the age of 60 years or
more but less than 80 years at any time during the
previous year:
 Taxable income Tax Rate
 Up to Rs. 3,00,000 Nil
 Rs. 3,00,000 - Rs. 5,00,000 5%
 Rs. 5,00,000 - Rs. 10,00,000 20%
 Above Rs. 10,00,000 30%

28. Resident super senior citizen
 1.3 Resident super senior citizen, i.e., every individual, being a resident in India,
who is of the age of 80 years or more at any time during the previous year:
 Taxable income Tax Rate
 Up to Rs. 5,00,000 Nil
 Rs. 5,00,000 - Rs. 10,00,000 20%
 Above Rs. 10,00,000 30%
 Plus:
 Surcharge: 10% of tax where total income exceeds Rs. 50 lakh
15% of tax where total income exceeds Rs. 1 crore
 Education cess: 3% of tax plus surcharge
 Note: A resident individual is entitled for rebate u/s 87A if his total income does not
exceed Rs. 3,50,000. The amount of rebate shall be 100% of income-tax or Rs. 2,500,
whichever is less.