The document provides an overview of the Income Tax Act of 1961 in India. It discusses key concepts such as the definition of an assessee, types of income, taxable income, residential status, exempted incomes, heads of income including salary, house property, capital gains, and other sources. It also summarizes provisions related to computation of profits from business or profession, capital gains, deductions allowed, and scope of total income under the act.

1. Income Tax - Law & Practice - I Ms. Eswari , Lecturer KCC – Kodaikanal – 624 104.

2. Income Tax - Law & Practice - I Unit – I Income Tax Act, 1961 Unit – II Exempted Incomes Unit – III Computation of Taxable Income Unit – IV Profits and Gains Unit – V Capital Gains

3. Unit – 1 HISTORY OF INCOME TAX IN INDIA Income – tax Act of 1961: on the basis of the recommendations made by the various committees, a new Act of Income-tax had been passed during the year 1961 termed as the “Income - Tax Act, 1961”. This Act came into force from 1 st April, 1962. This Act contains more than 400 sections and a number of sub-sections and 10 schedules. The Income – Tax department framed 121 rules for the effective application of this Act. These rules are termed as “Income - Tax Rules of 1962”. It also includes a number of sub - rules.

4. BASIC CONCEPTS – DEFINITIONS Assessee – section 2(7) Assessment – section 2 (8) Assessment year – section 2(9) Person – section 2(31) Previous year – section 3 Principal officer Relative Casual Income – section 10(3) Gross Total Income – section 14 Total Income – section 2(45) Income Dividend Income – section – 8 Deemed Income Average Rate of Income Tax – Section 2(10) Charitable purpose – section 2(15)

5. CAPITAL AND REVENUE Capital Receipts: Receipts from fixed capital Ex: Receipt from plant and machinery Revenue Receipts: Receipts from circulating capital Difference between capital and revenue receipts Difference between capital and revenue expenditure

6. RESIDENTIAL STATUS (SECTION – 6) Residential Status Resident Non-Resident Ordinarily Resident Not- ordinarily Resident

7. 1 .Individuals If an individual who satisfies understated both the conditions of section 6 of the Income-tax Act, then he becomes a non-resident. Condition Status1 . He is not in India for 182 days or more during the relevant previous year. If yes, then he is a non-resident. (so check the next condition.)2. He is not in India for 60 days or more during the previous year and he is not in India for 365 days or more during the 4 years prior to the previous year. If yes, then he is a non-resident. If you are not satisfying any of the above conditions to become non-resident, check whether following assists you to become a non-resident. In the case of an individual on visit to India or a member of the crew of an Indian ship or a person leaving India for employment outside India, the requirement of stay in India of 60 days in condition 2 above is extended to 182 days.

8. Cont… Resident but not ordinarily Resident (RNOR) A NRI who has returned to India for good is covered under the provisions of section 6(6) of the Income-tax Act. He is given a special status of Resident but not ordinarily Resident (RNOR) if he satisfies one of the following conditions: Condition Status1.He is not a resident, as per the above provisions, for at least 9 out of 10 previous years prior to the previous year under consideration. If yes, he is RNOR2. His stay in India during the 7 previous year prior to the previous year under consideration should not be 730 days or more. If yes, he is RNOR Note : An individual who is non-resident for 2 consecutive years, shall remain RNOR for 9 subsequent years and as such his foreign income is not taxable in India while his status RNOR. The status of RNOR renders certain income of such individual non-taxable.

9. 2. Hindu Undivided Family As per section 6(2), a Hindu undivided family (like an individual) is either resident in India or non-resident in India. A resident Hindu undivided family is either ordinarily resident or not ordinarily resident. A Hindu undivided family is said to be resident in India if control and management of its affairs is wholly or partly situated in India. A Hindu undivided family is non-resident in India if control and management of its affairs is wholly situated outside India.

10. 3. Firms, Association Of Persons As per section 6(2), a partnership firm and an association of persons are said to be resident in India if control and management of their affairs are wholly or partly situated within India during the relevant previous year. They are, however, treated as non-resident in India if control and management of their affairs are situated holly outside India. Companies As per section 6(3), an Indian company is always resident in India. A foreign company is resident in India only if, during the previous year, control and management of its affairs is situated wholly in India. However, a foreign company is treated as non-resident if, during the previous year, control and management of its affairs is either wholly or partly situated out of India.

11. SCOPE OF TOTAL INCOME OR INCIDENCE OF TAX – ( SECTION – 5) Incidence of tax Untaxed foreign Income of past years Receipt of income Remittance Accrual of income Arisal of income Deemed income

12. Assignment topics: History of Income Tax In India Difference between capital receipts and revenue receipt provisions for find out residential of an Individual scope of Income Tax Definition of assessee, previous year, assessment year, deemed Income, Income, person, etc.,

13. Further Readings: Students Guides to Income Tax - Vinod K. Singhania Income Tax – Theory, Law & Practice - Ts. Reddy & Y. Hari Prasad Reddy Income Tax Law & Practices - H.C. Mehrotra Income Tax Law and Practices - V.P. Gaur & D.B.Narang Income Tax Law and Practice - Bhagavathi Prasad

14. Unit - II INCOME EXEMPT FROM TAX ( SECTION – 10) Agricultural income sec 2(1A) Sum received by a member from HUF Tax-free income under the head salary Exempted to former ruler: sec – 10 (19A) Awards: sec – 10(17A) Income of local authority: Sec – 10(20) Any sum received under a life insurance policy Income of any regimental fund of the armed forces Income of certain national funds; sec – 10(23-c) Income of mutual funds

15. Cont.., 10. Income of Registered Trade union – section 10(24) 11. Income of provident funds: sec – 10(25) 13. Relief to foreign Govt. Employees 14. Relief to foreign companies 15. Incomes of non-residents 16. Interest on certain securities: sec-10(15) 17. Share of profit from partnership firm 18. Income of SAARC fund 19. Capital gain on transfer of US 64 units of the UTI 20. Exemption to political parties – section 13A 21. Etc.,

16. Assignment Topics Write any 15 Exempted Incomes Further Readings Students Guides to Income Tax - Vinod K. Singhania Income Tax – Theory, Law & Practice - Ts. Reddy & Y. Hari Prasad Reddy Income Tax Law & Practices - H.C. Mehrotra Income Tax Law and Practices - V.P. Gaur & D.B.Narang Income Tax Law and Practice - Bhagavathi Prasad

17. Unit - III HEADS OF INCOME Income under Head Salaries Income from House Property Income from Profits and Gains of Business or Profession Income from Capital Gains Income from other Sources

18. INCOME FROM SALARY (SEC-17) Basic Salary Etc. Allowances 2.1. Full exempted allowances 2.2. partly exempted allowances Special allowances House rent allowance Entertainment allowance 2.3 fully taxable allowances

19. Cont.., 3. Provident funds Statutory provident fund Recognised provident fund Unrecognised provident fund Public provident fund Approved super annuation fund 4. Perquisites Perquisites taxable in all cases Fully exemptes perquisites Perquisites taxable in specified cases only 5. Retirement benefits Pension Gratuity Leave salary encashed at the time of retirement 6. Profit in lieu of salary

20. INCOME FROM HOUSE PROPERTY (SEC 22 TO 27) Annual value Let-out house properties Self- occupies house properties Partly let-out and partly self – occupies house properties Deductions under section 24

21. Assignment Topics Write any 10 Fully Exempted allowance Write any 10 Partly exempted allowance Write any 15 tax free perquisities Types of provident fund Write the provision for retirement benefits

22. Further Readings Students Guides to Income Tax - Vinod K. Singhania Income Tax – Theory, Law & Practice - Ts. Reddy & Y. Hari Prasad Reddy Income Tax Law & Practices - H.C. Mehrotra Income Tax Law and Practices - V.P. Gaur & D.B.Narang Income Tax Law and Practice - Bhagavathi Prasad

23. Unit - IV PROFITS AND GAINS OF BUSINESS OR PROFESSION Business According to Sec.2(13), the term ‘Business’ includes, “any trade, commerce or manufacture or adventure in the nature of trade, commerce or manufacture”. Profession According to Sec. 2(36), “ profession” includes vocation, it is an occupation tequiring purely intellectual skill or manual skill controlled by the intellectual skill of the operator e.g. Lawyer, Doctor, Engineer, etc.

24. Vocation It is only a way of living for which one has special fitness it does not involve any organised or systematic activity like business Computation of profit and gains

25. Admissible or allowable expenses sec 30 – 37 Scientific research expenditure Expenditure on acquisition of copy rights Payment to rural development Payment made for the conservation of natural resources Expenditure on prospecting of certain minerals Etc., Deductions allowed

26. Assignment Topics Definition of business, Profession and Vocation Write any 10 admissible Expenses Deductions allowed for business and profession

27. Further Readings Students Guides to Income Tax - Vinod K. Singhania Income Tax – Theory, Law & Practice - Ts. Reddy & Y. Hari Prasad Reddy Income Tax Law & Practices - H.C. Mehrotra Income Tax Law and Practices - V.P. Gaur & D.B.Narang Income Tax Law and Practice - Bhagavathi Prasad

28. Unit - V CAPITAL GAINS Meaning Any income derived from the transfer of capital assets is known as “Capital gain” Capital Asset u/s 2(14). Capital asset means any property held by an assessee. Transfer u/s 2(47). Transfer means sales, Exchange, Relinquishment of an asset etc.,

29. Cont.., Short term capital gain A capital gain resulting from the transfer of a capital asset within 36 months from the date of its acquisition is known as ‘short term capital gain’ 5. Long term capital gain The gain resulting from the transfer of a capital asset after the expirty of 36 months from the date of its acquisition is known as long term capital gain 6. Cost of acquisition 7. CII 8. Cost of improvement Exemptions under section 54

30. INCOME FROM OTHER SOURCES It is the residuary head of income. Under this head, income of every kind which is not charged to tax under any of the other four heads are chargeable to tax. Examples of income from other sources Dividends (Exempted u/s 10) Winning from lotteries, crossword puzzles, races Annuities granted under a will Gross interest Grossing up of interest Deduction of tax at source sec 193 and 194 Deductions allowed sec – 57 Deductions disallowed sec – 58 Kinds of securities Bond washing transactions Exempted persons sec - 10

31. Assignment Topics Write any 15 examples of income from other sources Meaning of capital gain, capital asset, short term capital gain, long term capital gain, cost of acquisition etc., Exemption under section 54 Types of securities Tds Rates

32. Further Readings Students Guides to Income Tax - Vinod K. Singhania Income Tax – Theory, Law & Practice - Ts. Reddy & Y. Hari Prasad Reddy Income Tax Law & Practices - H.C. Mehrotra Income Tax Law and Practices - V.P. Gaur & D.B.Narang Income Tax Law and Practice - Bhagavathi Prasad

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