Objectives & Agenda : To know the need and relevanve of income tax, its applicability and its commencement date. To understand the meaning of the term "income" and "tax" and additionally the relevant terms in relation to income and taxes. The webinar shall predominantly focus on the basic and fundamental provisions of Income Tax Act, 1961, which is required to further appreciate the subsequent charging and computational provisions.

1. Basics
CA.Divakar Vijayasarathy

2. Schema
WHO SHOULD PAY
INCOME TAX & WHEN
DEFINITIONS

3. Person – Sec
2(31)
“Person” includes —
(i) An individual,
(ii) Hindu undivided family,
(iii) Company,
(iv) Firm,
(v) Association of persons (AoP) or a
body of individuals (BoI), whether
incorporated or not,
(vi) Local authority, and
(vii) Every artificial juridical person, not
falling within any of the above
categories.
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4. Who should pay
Income Tax &
When
Every Person (may be from India)
whose income for the previous year
exceeds the maximum amount not chargeable to tax,
will be regarded as an assessee and
shall be charged to tax,
at the rates of taxation
prescribed by the Finance Act
for the relevant assessment year.
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5. India – Sec
2(25A)
"India" means
- Land: the territory of India (as referred to
in Article 1 of the Constitution),
- Water: its territorial waters, seabed and
- subsoil underlying such waters,
- Continental shelf, exclusive economic zone
or
- Any other maritime zone as referred to in
the Territorial Waters, Continental Shelf,
Exclusive Economic Zone and other
Maritime Zones Act, 1976 (80 of 1976),
and
- Air: the air space above its territory and
territorial waters;
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6. Article 1
India, that is Bharat, shall be a Union of
States.
The States and the territories thereof
shall be as specified in the First Schedule.
The territory of India shall comprise of-
(a) the territories of the States;
(b) the Union territories specified in the
First Schedule; and
(c) such other territories as may be
acquired
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7. Income – Sec 2(24)
Salaries
• Perquisite or Profits in lieu of
salary
• Allowance or benefit for meeting
personal or official expenses
• Obligation of the employee or his
beneficiary paid by the employer
Business/ Professional Income
• Profits chargeable to tax u/s 28 &
41
• Sum received under Keyman
insurance policy
• Contributions from employees
towards insurance, provident
fund or superannuation received
by an employer
• Income from business of
insurance carried on by a Mutual
Insurance Company or by a Co-
operative Society
• Income from business of banking
carried on by a co-operative
society with its members
• FMV of inventory u/s 28(via)
Other Sources
• Profits chargeable to tax u/s 59
• Winnings from lotteries, card
games etc.
• Income u/s 56
• Any sum of money or value of
property specified u/s 56(2)(vii)
• Value of shares received under
circumstances specified in Sec
56(2)(viia)
• Excess consideration received on
allotment of shares as referred
u/s 56(2)(viib)
• any compensation or other
payment referred u/s 56 (2)(xi)
Misc
• Voluntary contributions received
by specified trusts, funds,
institutions and electoral trusts
• Income from capital gains
• Income from other sources
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8. Assessee- Sec 2(7)
Any Person
Any sum payable
under the Act
Any proceeding is
taken under the
Act
Deemed
Assessee
Representative
assessee
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9. Assessment
Year- Sec 2(9)
• Assessment year means the period of
12 months commencing on the 1st day
of April every year
i.e. the period beginning on the
1st of April and ending on 31st of March.
• Conceptually assessment year is the
year in which a person’s total income
is assessed to taxation.
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10. Previous Year –
Sec 2(34)
Sec 2(34)- previous year means,
previous year as per Sec 3.
Sec 3 defines a previous year as the
financial year immediately preceding the
assessment year.
In other words, previous year is the year
in which income is earned by an
assessee.
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11. Situations where
income of the
previous year is
assessed in the
same year
Shipping business of Non residents – Sec
172
Assessment of persons leaving India –
Sec 174
Assessment of AoP/ BoI/ AJP formed for
a particular event or purpose- Sec 174A
Assessment of persons likely to transfer
property to avoid tax -Sec 175
Assessment of Discontinued business –
Sec 176
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12. Shipping
business of Non
residents – Sec
172
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Where assessee is a non
resident
engaged in the business of
shipping passengers /livestock
/goods from a port in India
such assessee will be charged
income tax before the ship is
allowed to leave the Indian
port.
Income for this purpose shall
be deemed at 7.5% of the
freight /Charges/Fare
including demurrage charges,
handling charges etc
The Assessing Officer may
allow the Ship to leave port
without the payment of taxes,
•if satisfactory arrangements have
been made for the payment of tax
and filing of returns within 30 days.

13. Assessment of
persons
leaving India –
Sec 174
Income shall be assessed at the rates applicable to the relevant assessment
year.
he shall assess the income of the assessee from
the beginning of the previous year till the
probable date of departure during the previous year
itself.
with no apparent intention of returning back,
the assessee would be leaving India during the previous year or shortly
thereafter
Where the Assessing Officer is of the opinion that
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14. Assessment of
AoP/ BoI/ AJP
formed for a
particular event or
purpose- Sec 174A
• Where the Assessing Officer is of the opinion
that
• the formation of the above mentioned persons
is likely to be dissolved
• during the assessment year or immediately
after such assessment year,
• total income of such person from
• the expiry of the previous year
• till the date of the dissolution shall be
chargeable to tax in that assessment year.
• This section was introduced to tax entities
which were formed for a specific purpose and
are dissolved immediately after the purpose is
fulfilled.
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15. Assessment of
persons likely to
transfer property
to avoid tax -Sec
175
Where the Assessing Officer is of the opinion that
any person is likely to sell, charge, transfer or
otherwise part with his assets
with a view to avoid tax liability,
the total income of such person from the expiry of
the previous year till the date when
the Assessing Officer commences proceedings shall
be chargeable to tax in the same assessment year.
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16. Assessment of
Discontinued
business – Sec
176
• Where any business or profession has
been discontinued in any assessment
year,
• the income of the period from the
expiry of the previous year till the date
of discontinuance,
• may, at the discretion of the Assessing
Officer be charged to tax at the rates
relevant for the year of discontinuance.
• Any person discontinuing any business
or profession shall give to the Assessing
Officer, a notice of discontinuance
within 15 days.
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17. Finance Act
The Hon’ble Finance Minister - presents the
Union Budget – Finance Bill - on the floor of
the Lok Sabha during the month of Feb/Mar.
The Bill is put to debate and passed by both
the houses of Parliament.
The Bill, after approval and ascent from the
Hon’ble President of India becomes the
Finance Act.
Finance Act is generally passed in the month
of June/July of each year.
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18. Structure of the Finance Act 2019
Division Description
Chapter I Preliminary
Chapter II Rates of Income Tax
Chapter III Direct Tax Amendments
The First Schedule – Part I Tax rates applicable for the assessment year 2019-20
The First Schedule – Part II Rates for Deduction of tax at source in certain cases
The First Schedule – Part III Tax rates applicable for the assessment year 2020-21
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19. Basis for charging income to tax - Sec 4
Every revenue legislation requires an explicit
provision to authorize the levy of tax .
Section 4 of the Income Tax Act 1961, also
called as the Charging Section, authorizes the
Act to levy tax on income earned during the
previous year at the rates prescribed in the
Finance Act for the relevant assessment year.
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20. Specific Charging Sections
Section Head of Income
15 Income under Salaries
22 Income from house property
28 Profits and Gains of Business or Profession
45 Income from Capital gains
56 Income from Other Sources
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21. Diversion vs Application of Income
Diversion of income overriding title Application of income
Income received by a person who is not
legally entitled to enjoy such income.
Income is available for disposal by the assessee who exercises his option to
transfer such income in favour of any other person.
Income is taxed in the hands of the real
beneficiary of such income.
Income is taxable in the hands of the person who had the option to apply such
income.
Mr X, a salaried employee, donates 10% of his salary for the cause of charity. He gives an instruction to his employer stating that his salary
be paid directly to a charitable trust. Is Mr X liable for taxation on the salary paid to the trust?
Mr Y inherited a house property from his late father. The property has been let out on a monthly rent of Rs 20,000. According to the will, Mr
Y shall be the legal owner of the property after his father’s demise, however any income arising from the property shall be entirely given to
his mother till her death. In this case, the lease agreement is entered into by Mr Y since he is the legal owner of the property. Is the rental
income assessable to tax in the hands of Mr Y or his mother.
The former illustration is a case of application of income while the latter is a case of diversion of income overriding title.
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22. Capital vs Revenue Receipt
Capital receipt Revenue receipt
Transaction amounts to change of investment
or realization of capital
Transaction entered into during the ordinary
course of business
Consideration is generally lumpsum Consideration is generally in smaller sums
Transactions are non recurring in nature Transactions are recurring in nature
Taxable only if its explicitly provided by Law Exempt only if its explicitly provided by Law
Illustration
- Lumpsum consideration in lieu of alimony
- Consideration for surrender of tenancy
rights
- Forfeiture of share application money-
Illustration
- Forfeiture of security deposit
- Compensation for loss of profits
- Refund of sales tax
- Turnover receipts
- Income from sale of scrap
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23. Rates of Taxation - Individuals
Income Slab Individual / HUF Senior Citizen (60+) Super Senior Citizen (80+)
Up to 2.5 lacs Nil Nil Nil
2.5 - 3 lacs 5% Nil Nil
3 - 5 lacs 5% 5% Nil
5-10 lacs 20% 20% 20%
Above 10 lacs 30% 30% 30%
Surcharge
(common for all individuals/HUF)
Income slab and rates Nil
(upto Rs 50 lacs)
10%
(50+-100 lacs)
15%
(100+ lacs)
Health and Educational
Cess
4% on tax + surcharge for all income levels
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24. Rates of Taxation
Particulars Firms / Local Authority Domestic Companies Foreign Companies
Tax Rate 30% 30%/25%** 40%
Surcharge Taxable Income
Nil Upto 1 crore Upto 1 crore Upto 1 crore
2% NA NA 1- 10 crores
5% NA NA Above 10 crores
7% NA 1-10 crores NA
12% Above 1 crore Above 10 crores NA
Health and Educational
Cess
4% on tax + surcharge for all income levels
Note ** For turnover/gross receipts upto Rs 250 crores
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25. Rates of Taxation – Coop Societies
Income Rate of Tax
Upto Rs 10,000 10%
10,001-20,000 20%
Above 20,000 30%
Surcharge 12% if taxable income exceed Rs 100 lacs
Health and Educational Cess 4% on tax + surcharge for all income levels
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26. Marginal Relief
• Marginal relief is a benefit given to certain categories of
assessees where the total income is marginally in
excess of the threshold for levy of surcharge
• Rationale for Marginal Relief: Relief is provided to
ensure that incremental income tax payable including
surcharge (prior to cess), on income in excess of
threshold limit does not exceed such excess income.
• Condition/Situation:
• Total Income should be more than threshold limit
i.e 50/100/1000 lacs
• Incremental tax and surcharge liability on account
of income exceeding threshold limit should be
more than income in excess of Rs 100 lakhs.
• Relief: Incremental tax and surcharge liability will be
restricted to the value of income in excess of threshold
limit.
*** text of marginal relief
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27. Steps in
Computing
Marginal Relief
• Compute tax on total income (A)
(without cess @ 4%)
• Compute tax at the threshold limit (B)
(without cess @ 4%)
• Compute incremental tax = (A-B)
• Compute incremental income = (Total
Income – Rs 50/100/1000 lacs)
• Marginal relief shall apply if
incremental tax (A-B) is greater than
incremental income
• Tax after Marginal relief = Tax at
threshold limit (B) + Incremental
Income
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28. Rounding Off Provisions
Section Description Action Illustration
288A Rounding off total
income
Round off to the
nearest 10 i.e 5 and
above to the
succeeding 10 and less
than 5 to the preceding
10
28,953 - shall be
rounded off to 28,950
28,955- shall be rounded
off to 28,960
288B Rounding off tax
liability and refund
due
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29. Definitions
Company – Sec 2(17)
Indian Company –
Sec 2(26)
Domestic Company –
Sec 2(22A)
Foreign Company –
Sec 2(23A)
Firm, Partner &
Partnership – Sec
2(23)
Cooperative Society –
Sec 2(19)
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30. Company – Sec
2(17)
• any Indian company, or
• any body corporate incorporated by or under the laws of a
country outside India,
• any institution, association or body which is or was assessable
or was assessed as a company for any assessment year under
the Indian Income-tax Act, 1922 (11 of 1922),
• which is or was assessable or was assessed under this Act as a
company for any assessment year commencing on or before
the 1st day of April, 1970,
• any institution, association or body, whether incorporated or
not and whether Indian or non-Indian, which is declared by
general or special order of the Board to be a company:
• Provided that such institution, association or body shall
be deemed to be a company only for such assessment
year or assessment years (whether commencing before
the 1st day of April,1971, or on or after that date) as may
be specified in the declaration.
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31. Indian
Company – Sec
2(26)
“Indian company” means a company formed and
registered under the Companies Act, 1956 (1 of
1956), and includes:
• a company formed and registered under any law
relating to companies formerly in force in any
part of India other than the State of Jammu and
Kashmir and the Union territories given below
• in the case of any of the Union territories of
Dadra and Nagar Haveli, Goa, Daman and
Diu, and Pondicherry
• a corporation established by or under a Central,
State or Provincial Act
• any institution, association or body which is
declared by the Board to be a company
• in the case of the State of Jammu and Kashmir, a
company formed and registered under any law
for the time being in force in that State
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32. Domestic
Company – Sec
2 (22A)
• an Indian company, or
• any other company which, in respect of
its income liable to tax under this Act,
has made the prescribed arrangements
for the declaration and payment,
within India, of the dividends (including
dividends on preference shares)
payable out of such income.
Indian branch of a foreign company, which directly
distributes dividends to its shareholders shall be
regarded as a domestic company – Further Sec 115 O
applies only to a domestic company
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33. Foreign
Company – Sec
2(23A)
• Foreign Company means a company
which is not a domestic company.
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34. Firm, Partner &
Partnership –
Sec 2(23)
• “Firm” shall have the meaning assigned to it in the
Indian Partnership Act, 1932 (9 of1932), and shall
include a limited liability partnership as defined in the
Limited Liability Partnership Act, 2008 (6 of 2009);
• “Partner” shall have the meaning assigned to it in the
Indian Partnership Act, 1932 (9 of 1932), and shall
include,—
• any person who, being a minor, has been admitted
to the benefits of partnership; and
• a partner of a limited liability partnership as
defined in the Limited Liability Partnership Act,
2008 (6 of 2009);
• “Partnership” shall have the meaning assigned to it in
the Indian Partnership Act, 1932 (9 of 1932), and shall
include a limited liability partnership as defined in the
Limited Liability Partnership Act, 2008 (6 of 2009)
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35. Cooperative
Society – Sec
2(19)
A co-operative society means:
• a co-operative society registered under
the Co-operative Societies Act, 1912 (2
of 1912), or
• under any other law for the time being
in force in any State for the registration
of cooperative societies.
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36. Thank You
For your Patience!!!