taxation basic defination

1. Taxation

2. Tax
Tax is a fee charged by a government on a product, income
or activity.
There are two types of taxes . Direct taxes and indirect taxes.
If tax is levied directly on the income or wealth of a person,
then it is a direct tax e.g. income-tax, wealth tax.
If tax is levied on the price of a good or service, then it is
called an indirect tax e.g. excise duty, Goods and Services Tax.
In the case of indirect taxes, the person paying
the tax passes on the incidence to another person.

3. POWER TO LEVY INCOME TAX
• •The central & State Govts have the power to
levy & collect taxes.

4. WHY ARE TAXES LEVIED?
The reason for levy of taxes is that they
constitute the basic source of revenue to the
government.
Revenue so raised is utilised for meeting the
expenses of government like defence,
provision of education, health-care,
infrastructure facilities like roads, dams etc.

5. Tax Structure
Direct Tax
Income Tax
(Central)
Wealth Tax
(Central)
Agricultural Tax
(State)
Professional Tax
(State)
Indirect Tax
Excise Duty
(Central & State)
Custom Duty
(Central)
Sale Tax
(Central & State)
Value Added
Tax
(State)
Expenditure Tax
(Central)
Service Tax
(Central)
Octroi
(Municipality
Entry Tax
(State)
Amusement Tax
(State)

6. Income-tax is the most significant direct tax.
The income-tax law in India consists of the
following components.
Income Tax Act, 1961
Annual Finance Acts
Income Tax Rules, 1962
Circulars/Notifications
Legal decisions of Courts

7. Income tax Act, 1961
The levy of income-tax in India is governed by the
Income-tax Act, 1961.
This Act came into force on 1st April, 1962.
The Act contains 298 sections and XIV schedules.
These undergo change every year with additions and
deletions brought about by the Finance Act passed by
Parliament.
In pursuance of the power given by the Income-tax
Act, rules have been framed to facilitate proper
administration of the Income-tax Act.

8. Annual Finance Act
Every year, the Finance Minister of the Government of
India presents the Budget to the Parliament.
Part A of the budget speech contains the proposed
policies of the Government in fiscal areas.
Part B of the budget speech contains the detailed tax
proposals.
In order to implement the above proposals, the Finance
Bill is introduced in the Parliament.
Once the Finance Bill is approved by the Parliament and
gets the assent of the President, it becomes the Finance
Act.

9. Income tax Rules, 1962
The administration of direct taxes is looked
after by the Central Board of Direct Taxes (CBDT).
The CBDT is empowered to make rules for
carrying out the purposes of the Act.
For the proper administration of the Income-tax
Act, the CBDT frames rules from time to time.
These rules are collectively called Income-tax
Rules, 1962. It is important to keep in mind that
along with the Income-tax Act, these rules should
also be studied.

10. Circulars and Notifications
Circulars are issued by the Central Board Direct
Taxes (CBDT) from time to time to deal with certain
specific problems and to clarify doubts regarding
the scope and meaning of the provisions.
These circulars are issued for the guidance of the
officers and/or assessees.
The department is bound by the circulars. While
such circulars are not binding the assessees they
can take advantage of beneficial circulars.

11. Case Laws
The study of case laws is an important and
unavoidable part of the study of income-tax law.
It is not possible for Parliament to conceive and
provide for all possible issues that may arise in the
implementation of any Act. Hence the judiciary will
hear the disputes between the assessees and the
department and give decisions on various issues.
The Supreme Court is the Apex Court of the country
and the law laid down by the Supreme Court is the law
of the land.
The decisions given by various High Courts will apply
in the respective states in which such High Courts have
jurisdiction.

12. LEVY OF INCOME-TAX
Income-tax is a tax levied on the total income
of the previous year of every person. A
person includes
An individual,
Hindu Undivided Family (HUF),
Association of Persons (AOP),
Body of Individuals (BOI),
A firm,
A company,
Artificial Juridical Persons.

13. Type of Taxes
Direct Tax
(Govern CBDT)
Impose On
Person
Indirect Tax
(Govern By CBIT)
Impose On
Goods
&Services

14. Tax, Duty, Cess, Surcharge
• Tax- is a payment made to the
government of the country without return
• Duty- is a levy on goods
• Cess- is a tax levied for specific purpose
• Surcharge- is a additional tax burden to
those, whose income exceeds the specific
limit
• Income Tax- a levy on income earned
• Levy is not a tax- The act of charging the
tax.

15. Duty
• This is an on border tax charged on goods
(Commodities or things that you can physically
touch) either while coming into the country or
going out of the country. Generally a
percentage of the value of the goods.
• The duty that is levies for goods manufactured
outside the country called as excise duty
• Duty that is levied on goods imported from a
foreign country is called as customs duty

16. Duty vs Tax
• Duty is a levy on goods
• Pay the tax first and the take the
goods(prior Payment) excise duty,
custom Duty
• Tax is levied on other than
goods(Not prior to the Payment)
income tax, sales tax

17. TOTAL INCOME AND TAX
PAYABLE
Income-tax is levied on an assessee’s total income. Such total
income has to be computed as per the provisions contained in the
Income-tax Act, 1961. Let us go step by step to understand the
procedure of computation of total income for the purpose of levy of
income-tax.
Step 1 Determination of residential status
Step 2 Classification of income under different heads
Step 3 Exclusion of income not chargeable to tax
Step 4 Computation of income under each head
Step 5 Clubbing of income of spouse, minor child etc.
Step 6 Set-off or carry forward and set-off of losses
Step 7 Computation of Gross Total Income.
Step 8 Deductions from Gross Total Income
Step 9 Total income
Step 10 Application of the rates of tax on the total income
Step 11 Surcharge
Step 12 Education cess and secondary and higher education cess
Step 13 Advance tax and tax deducted at source

18. Stages in the imposition of
Income tax
There are three stages:
1. Declaration of liability.
2. Assessment.
3. Recovery of tax.

19. 1. Declaration of liability
• the persons or the properties in
respect of which the tax or duty is to
be levied is identified and charged.
• The relevant provision of the act the
particular person who is liable to
pay tax and the income of the
person is liable.

20. 2. Assessment of liability
• Determine the exact sum
which a person liable has to
pay. In this stage total income
of such person as well as the
amount of tax payable is
assessed.

21. 3. Recovery of Tax
• Generally, the person
who liable his tax liable is
discharge voluntary.

22. Basic Concept
a. Tax Evasion
b.Tax Avoidance
c. Tax plaining

23. Tax Evasion
• Tax evasion is illegal action in which a
individual or company to avoid paying tax
liability. It involves hiding or false income,
without proof of inflating deductions, not
reporting cash transaction etc. Tax evasion
is serious offense comes under criminal
charges and substantial penalties.

24. Activities of Tax Evasion
• Failing to pay the due
• Smuggling
• Submitting false tax returns
• Inaccurate financial statements
• Using fake documents to claim exemption
• Not reporting income
• Bribery
• Storing wealth outside the country

25. Tax Avoidance
• Tax avoidance is any legal method used by a
taxpayer to minimize the amount of income tax
owed.
• Individual taxpayers and corporations can use
forms of tax avoidance to lower their tax bills.
• Tax credits, deductions, income exclusion, and
loopholes are forms of tax avoidance.
• These are legal tax breaks offered to encourage
certain behaviors, such as saving for retirement
or buying a home.
• Tax avoidance is unlike tax evasion, which relies
on illegal methods such as underreporting
income.

26. Taxpayers can take advantage of tax avoidance
through various credits, deductions, exclusions, and
loopholes, such as:
• Claiming the child tax credit
• Investing in a retirement account and maxing
out your annual contributions
• Taking the mortgage tax deduction
• Putting money into a health savings
account (HSA)

27. Tax Planing
• Tax planning is the analysis of a financial
situation or plan to ensure that all elements work
together to allow you to pay the lowest taxes
possible.
• A plan that minimizes how much you pay in
taxes is referred to as tax efficient. Tax planning
should be an essential part of an individual
investor's financial plan.
• Reduction of tax liability and maximizing the
ability to contribute to retirement plans are
crucial for success.

28. Income Tax is One Tax

29. Thank You