Under Fundamental Concepts of Income Tax Presentation, Important Definitions under Income Tax Act, Residential Status of the assesses & its tax incidence is covered.

1. FUNDAMENTAL CONCEPTS UNDER
INCOME TAX ACT, 1961.
-: Complied By :-
Prof. Rajesh Jain
rmjainca@gmail.com

2. Classification of Taxes
Direct Taxes Indirect Taxes
Meaning It is a tax where incidence as well
as impact of tax is on one and
the same person. In other words,
it is borne by the assessee and
cannot be passed on to the
customer.
It is a tax where the incidence is on
one person but the impact is on
the customer. In other words, the
person on whom tax is levied
passes on the tax burden to the
customer.
Example a) Income Tax
b) Wealth Tax
a) Sales tax
b) VAT
c) Excise duty
d) Customs duty
e) Service tax
Burden Burden not felt by all persons Burden shouldered by all persons

3. Charge of Income Tax [ Section 4 ]
As provided in Section 4, the total income of the
previous year of every person shall be charged to
Income Tax at the rates prescribed in the annual
Finance Act as applicable to the relevant assessment
year

4. Important Definitions
1. Person [Sec 2(31)] :
The income tax is charged in respect of total income of the
previous year of every person. Here, the person means,
a. Individual
b. Hindu Undivided Family [ HUF ]
c. Association of Persons [ AoP ] or Body of Individuals [BoI]
whether incorporated or not.
d. Company,
e. Firm
f. Local Authority
g. Every Artificial Juridical Person [ AJP ] not falling in any of
the preceding categories.

5. Definitions Contd..
2. Assessee [ Sec 2(7) ] :
Income Tax Act,1961 defines “assessee” as a person by
whom any tax or any other sum of money is payable under
this Act, and includes,
* Every person in respect of whom any proceeding under
this Act has been taken for the assessment of his income or
income of any other person in respect of which he is
assessable, or of the loss sustained by him or such other
person, or the amount of refund due to him or to such other
person.
* Any Person who is deemed to be an assessee under
any provisions of this Act.
* Any Person who is deemed to be an assessee in
default under any provisions of the Act.

6. Definitions Contd..
3. Previous Year [Sec 3] :
“The year in which income is earned is known as Previous
Year. Previous Year is the Financial Year immediately
preceding the Assessment Year.”
Notes : * All assessees are required to follow financial year
( i.e. Apr To Mar ) as previous year.
* This uniform previous year has to be followed for all
sources of income.

7. Definitions Contd..
4. Assessment Year [Sec 2 (9)] :
“ `Assessment Year’ means the period starting from April 1
and ending on March 31, next year.”
Income of Previous Year of the Assessee is taxed during the
next following assessment year at the rates prescribed by
relevant Finance Act.

8. Definitions Contd..
5. Income [Sec 2 (24)] :
Under Sec.2(24), the term “income” specifically include the following :
1. Profit & Gains
2. Dividend
3. Voluntary Contributions received by Trust
4. Perquisites in the hands of employees.
5. Any Special Allowance or benefit
6. City Compensatory Allowance/Dearness Allowance
7. Any benefit or perquisites to a director
8. Any benefit or perquisites to a representative assessee.
9. Any sum chargeable under section 28, 41 & 59.
10. Capital Gains
11. Insurance Profit
12.Banking income of a Co-operative Society
13.Winning from Lottery.
14. Employees Contributions towards provident fund
15. Amount received under Keyman Insurance Policy.
16.Amount exceeding Rs.50000/- by way of Gift received by an individual or HUF.

9. Definitions Contd..
Income [Sec 2 (24)] : contd..
The definition of the term “income” u/s 2(24) is inclusive and not
exhaustive. Therefore, the term “income” not only includes those things
which are included in section 2(24) but also includes such things which
the term signifies according to its general & natural meaning.
Therefore, following points must be kept in mind while assessing income :
1. Income can be in any form i.e. in Cash or in kind.
2. Income will also include illegal income, if any.
3. Disputed title to income does not make any difference.
4. Income must come from Outside. One cannot earn profit from oneself.
5. Income should be real & not fictional. (E.g. : H.O. & Branch transactions)
6. Receipt in lump sum or in instalment does not make any difference.
7. There is difference between Capital Receipts & Revenue Receipts.
All Revenue receipts are taxable unless specifically exempt, while all capital
receipts are exempt unless specifically taxed.
8. Income includes loss.
9. Same income cannot be taxed twice.

10. Definitions Contd..
7. Gross Total Income [Sec 14] :
As per Section 14 income of a person is computed under the
following heads,
1. Salaries
2. Income from House Properties
3. Profits & Gains of Business or Profession
4. Capital Gains
5. Income from other Sources.
The aggregate income under these heads is termed as
“ Gross Total Income”.

11. Definitions Contd..
8. Total Income [ Sec 2 (45) ] :
“` Total Income ’ means the total amount of income referred to
in Section 5, computed in the manner laid down in the Act.”
In other words, it is the income after allowing the deductions
u/s 80 C to 80 U.

12. Definitions Contd..
Computation of Total Income
Particulars Amount
1 Income from Salaries xxx
2 Income from House Properties xxx
3 Profits & Gains of Business & Prof. xxx
4 Capital Gains xxx
5 Income from other Sources xxx
Less : Set off & carry forward of Losses xxx
Gross total Income XXX
Less : Deductions u/s 80 C to 80 U xxx
Total Income XXX

13. Rates of Tax for A.Y. 2014-15:
(As per Part III of the First Schedule to
the Finance Act, 2013)

14. Tax Rates
In case of Very Senior Citizen
( Age >= 80 + )
1. Where the total income does not
exceed Rs. 5,00,000
2. Where the total income exceeds
Rs. 5,00,000 but does not exceed
Rs. 10,00,000
3. Where the total income exceeds
Rs. 10,00,000
1. NIL
2. 20% of the amount by which
the total income exceeds Rs.
5,00,000
3. Rs. 1,00,000 plus 30% of the
amount by which total
income exceeds Rs.
10,00,000

15. Tax Rates
in the case of Resident Senior Citizen
( Age 60 – 79 Years )
1. Where the total income does
not exceed Rs. 2,50,000
2. Where the total income
exceeds Rs. 2,50,000 but does
not exceed Rs. 5,00,000
3. Where the total income
exceeds Rs. 5,00,000 but does
not exceed Rs. 10,00,000
4. Where the total income
exceeds Rs. 10,00,000
1. NIL
2. 10% of the amount by which
the total income exceeds Rs.
2,50,000
3. Rs. 25,000 plus 20% of the
amount by which the total
income exceeds Rs. 5,00,000
4. Rs. 1,25,000 plus 30% of the
amount by which total income
exceeds Rs. 10,00,000

16. Tax Rates
For any other Individual ( including resident women), every
HUF/AOP/BOI/AJP
1. Where the total income does
not exceed Rs. 2,00,000
2. Where the total income
exceeds Rs. 2,00,000 but does
not exceed Rs. 5,00,000
3. Where the total income
exceeds Rs. 5,00,000 but does
not exceed Rs. 10,00,000
4. Where the total income
exceeds Rs. 10,00,000
1. NIL
2. 10% of the amount by which
the total income exceeds Rs.
2,00,000
3. Rs. 30,000 plus 20% of the
amount by which the total
income exceeds Rs. 5,00,000
4. Rs. 1,30,000 plus 30% of the
amount by which total income
exceeds Rs. 10,00,000

17. Tax Rates
In the case of every co-operative society-
1. Where the total income does not
exceed Rs. 10,000
2. Where the total income exceeds
Rs. 10,000 but does not exceed
Rs. 20,000
3. Where the total income exceeds
Rs. 20,000
1. 10% of the total income
2. Rs. 1,000 plus 20% of the
amount by which the total
income exceeds Rs. 10,000
3. Rs. 3,000 plus 30% of the
amount by which total
income exceeds Rs. 20,000

18. Tax Rates
In case of every Firm & Local Authority-
On the whole of the total
income
30 %
Tax Rates
In case of a Company
I. In case of a domestic company
II. In the case of a company other
than a domestic company
i) on certain specified incomes
ii) on the balance, if any, of the
total income
30 % of the total income
50 %
40 %

19. Surcharge on Income Tax
In addition to the amount of income tax computed as
per the above mentioned rates or as per section
111A or section 112, every company shall be liable to
pay surcharge only if its total income exceeds Rs. 1
crore. The rates of surcharge are:
Domestic Company : 5%
Company other than domestic company : 2%
Marginal Relief is provided to all companies having a
total income exceeding Rs. 1 crore.
( Refer example given below )

20. Surcharge on Income Tax
Example of Marginal Relief :
In this case XYZ Ltd has to Pay ₹ 1,53,150/- as a additional tax on additional income of
Rs.10000/-.
Which is more than the additional income. Hence, Marginal Relief of ₹ 1,43,150/-
shall granted to XYZ Ltd.
(In other words, additional tax liability shall not exceed additional income over Rs.1
Cr.)
ABC LTD XYZ LTD
TOTAL INCOME : 1,00,00,000 TOTAL INCOME : 1,00,10,000
Tax on Income : 30,00,000 Tax on Income : 30,03,000
Surcharge : Nil Surcharge @5% : 1,50,150
Total Tax : 30,00,000 Total Tax : 31,53,150
Diff : -- Diff : 1,53,150

21. Cess
Education Cess @ 2% Secondary & Higher Education
Cess @ 1% shall be levied on total tax payable
including surcharge, if any. Unlike surcharge,
Education Cess is applicable to all assessees.

22. RESIDENTIAL STATUS AND SCOPE
OF TOTAL INCOME

23. Tax Liability = Total Income * Rate of Tax
Residential Status ≠ Citizenship
Residential Status
Resident Non - Resident
Ordinarily
Resident
Not Ordinarily
Resident
Section 6(1)
Section 6(6)

24. Section 6(1) – [Satisfy any one]
Basic Condition (a):
182 days or more during the previous year.
OR
Basic Condition (b):
60 days or more during previous year
&
365 days or more during 4 years
immediately preceding the relevant previous years.
e.g. : F.Y. 2013-14, relevant previous years are:
I 2012-13 I
I 2011-12 I
I 2010-11 I
I 2009-10 I

25. Exception to Basic Condition (b)
As per this Exception, In the following cases, an individual will
be resident in India only if he is in India during relevant
previous year for at least 182 days; and Basic Condition (b)
will not be applicable.
1. Indian Citizen, who being in India, leaving India, for
employment (includes self employed)
2. Indian Citizen, who being in India, leaving India, Indian ship as
a crew member.
3. Indian Citizen, who stays outside India, comes to India during
relevant previous year, for visit.
4. Person of Indian origin, who being outside India, comes to India
during relevant previous year, for visit.
(Note : A person is deemed to be an Indian Origin if he or either of his parents or
any of his grand parents, was born in Undivided India.)

26. Section 6(6) – [Satisfy both]
i. He has been resident in India in at least 2 years out of the 10
years immediately preceding the relevant previous year.
AND
ii. He has been in India for a period of 730 days or more
during 7 years immediately preceding the relevant previous
year.

27. Residential Status
Individual
Stay in India
Section 6 (1): [Any One]
a) 182 days or more during P.Y. 2013-14
OR
b) 60 days or more during P.Y. 2013-14
AND
365 days or more during PY. 2009-10 to 2012-13
[Remember 4 exceptions]
Section 6 (6): [Both]
1) Resident for 2 out of 10 years (From 2003-04 to 2012-13)
AND
2) 730 days or more during 7 years (From 2007-08 to 2013-14)

28. Hindu Undivided Family
Control and Management
Wholly in India
Partly in India &
Partly outside India
Wholly outside
India
Resident
Section 6(6)
If Karta satisfy Section 6(1)
If Karta does not satisfy
Section 6(6)
HUF = “R & OR” HUF = “R & NOR”
Non - Resident

29. Company
Registration
In India Outside India
Indian Company
Always Resident
Foreign Company
Wholly in India
Partly in India &
Partly Outside India
Wholly Outside
India
Resident Non-Resident Non-Resident
Control & Management

30. Firm / Association of Persons & Body of Individuals
/ Local Authority / Artificial Juridical Person
Control and Management
Wholly in India
Partly in India & Partly
outside India
Wholly outside India
Resident Resident Non-Resident
Important NOTE : There is no further classification into Resident & Ordinarily Resident,
Resident & Not Ordinarily Resident, in case of Company, Firm,
Association of Persons & Body of Individuals, Local Authority, Artificial Juridical Person

31. Scope of Total Income [ Sec 5 ]
Particulars Resident Not Ordinary
Resident
Non-
Resident
Taxability Taxability Taxability
INDIAN INCOME
1. Income received or deemed
to be received in India,
whether earned in India or
elsewhere.
2. Income which accrues or
arises or is deemed to accrue
or arises in India during the
previous year, whether
received in India or
elsewhere.
Yes
Yes
Yes
Yes
Yes
Yes

32. Scope of Total Income [ Sec 5 ] contd..
Particulars Resident Not Ordinary
Resident
Non-
Resident
Taxability Taxability Taxability
FOREIGN INCOME
1. Income which accrues or
arises outside India and
received outside India from a
business controlled from
India or Profession set up in
India.
2. Income which accrues or
arises outside India and
received outside India in the
previous year from any other
source.
Yes
Yes
Yes
No
No
No.