CORPORATE TAX PLANNING
BASIC CONCEPTS OF INCOME TAX
(2016-17 Assessment Year)
Dr. THULASI KRISHNA. K, Ph.D.
Dept. of Management Studies
MITS - Madanapalle
"It was only for the good of his subjects that he collected taxes from
them, just as the Sun draws moisture from the Earth to give it back a
– Kalidas in Raghuvansh praising KING DALIP.
History of Tax
• Income tax today is an important source of revenue for government
in all the countries.
• More than 3,000 years ago, the inhabitants of ancient Egypt and
Greece used to pay income tax, consumption taxes and custom
• The origin of the word "Tax" is from "Taxation" which means an
estimate. These were levied either on the sale and purchase of
merchandise or livestock and were collected in a haphazard manner
from time to time.
• In Greece, Germany and Roman Empires, taxes were also levied sometime on the
basis of turnover and sometimes on occupations.
• In Northern England, taxes were levied on land and on moveable property such
as the Saladin title in 1188. Later on, these were supplemented by introduction of
poll taxes, and indirect taxes known as "Ancient Customs" which were duties on
wool, leather and hides.
• In India, the system of direct taxation as it is known today, has been in force in one form or another
even from ancient times.
• There are references both in Manu Smriti and Arthasastra to a variety of tax measures.
• Manu, the ancient sage and law-giver stated that the king could levy taxes, according to Sastras.
The wise sage advised that taxes should be related to the income and expenditure of the subject.
• According to him, the king should arrange the collection of taxes in such a manner that the subjects
did not feel the pinch of paying taxes.
• He laid down that traders and artisans should pay 1/5th of their profits in silver and gold, while the
agriculturists were to pay 1/6th, 1/8th and 1/10th of their produce depending upon their circumstances.
• Kautilya's Arthasastra, deals with the system of taxation in a real elaborate and planned
• The land revenue was fixed at 1/6th share of the produce and import and export duties
were determined on advalorem basis (according to value).
• The import duties on foreign goods were roughly 20 per cent of their value. Similarly, tolls,
road cess, ferry charges (merchant vehicle) and other levies were all fixed.
• Kautilya's concept of taxation is more or less akin to the modern system of taxation. His
overall emphasis was on equity and justice in taxation.
• Income-tax was first introduced in India in 1860 by James Wilson who become
Indian’s first Finance Member in order to meet heavy expenses and losses
suffered by the rulers due to India’s first freedom movement of 1857.
• The Act came into force on 24th July 1860.
• The Act lapsed in 1865 and was reintroduced in 1867.
• There was need for more revenue to fight Anglo-Russian war and hence
General Lord Dufferin introduced a comprehensive Income Tax Act 1886.
• The Act was replaced in 1922.
• Again the Act was replaced in 1961 (w.e.f 01.04.1962)
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
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
c) Excise duty
d) Customs duty
e) Service tax
Burden Burden not felt by all persons Burden shouldered by all persons
Classification of Taxes
1. Person [Sec 2(31)] :
The income tax is charged in respect of total income of the previous year of every
person. Here ‘person’ means,
b. Hindu Undivided Family [ HUF ]
c. Association of Persons [ AoP ] or Body of Individuals [BoI] whether incorporated or not
f. Local Authority
g. Every Artificial Judicial Person [ AJP ] not falling in any of the preceeding categories
2. Assessee [ Sec 2(7) ] :
Income Tax Act,1961 defines ‘assesse’ 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.
3. Assessment Year [Sec 2 (9)] :
• `Assessment Year’ means the period starting from April 1 and ending on March 31,
• Assessment year is the year immediately following the financial year wherein the
income of the Financial Year is assessed at the rates prescribed by relevant Finance
• In simple words, it is the year in which tax is payable on the income earned in
previous year. Ex: Current Assessment Year – 2016-17
4. 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.”
Ex: Previous Year - 2015-16
Notes : * All assessees are required to follow financial year ( i.e. Apr To Mar ) as
* This previous year has to be followed for all sources of income
5. Income [Sec 2 (24)] :
Under Sec.2(24), the term “income” specifically include the following :
1. Profit & Gains
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.
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
8. Income includes loss.
9. Same income cannot be taxed twice.
6. Gross Total Income [Sec. 14] :
As per Section 14, income of a person is computed under the following heads,
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”.
7. 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.
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
Computation of Total Income