Introduction

Direct Taxes Taxes borne by the person paying the tax. E.g. Income Tax, Wealth Tax. Indirect Taxes Taxes passed on to others by the person paying the tax. E.g. Sales Tax, Excise Duty, Customs Duty, Service Tax. Duties Indirect Taxes paid to the Government first and recovered from others later. E.g. Excise Duty, Customs Duty.

Income Tax Act, 1961

Extends to the whole of India. Came into force with effect from 1st April 1962. Fiscal statute which needs to be interpreted strictly. Section 2 defines various terms and expressions. Means When a definition uses a term means then the term so defined means only what is defined therein and nothing beyond that. Inclusive When an exhaustive definition is not possible, it uses the term include in order to give an illustrative definition.

Assessee
As per Section 2(7), assessee means a person by whom any tax or any other sum of money is payable under the Income Tax Act, and includes
every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or of the income of any other person in respect of which he is assessable. every person who is deemed to be an assessee under any provision of this Act. E.g. Representative Assessee, Agent of Non-Resident. every person who is deemed to be an assessee in default under any provision of this Act. E.g. An employer who fails to deduct tax at source from salary paid to employee.

Person
As per Section 2(31), person includes
an individual. a Hindu Undivided Family. a company. a firm. an association of persons or a body of individuals, whether incorporated or not. E.g. Navjeevan CHS Ltd, All India CFP Students Association. a local authority. E.g. BMC, Pune Cantonment Board. every artificial juridical person, not falling within any of the preceding sub-clauses. E.g. University of Mumbai.

AOP can be formed by two or more persons. BOI can be formed by two or more individuals.

Previous Year & Assessment Year

The Financial Year in which the income is earned is known as Previous Year. The year in which such income is taxed is known as Assessment Year. E.g. For AY 2013-2014, PY is 2012-2013, i.e. the FY from 1st April 2012 to 31st March 2013.

Income
As per Section 2(24), income includes
Profits and Gains. Dividend. Voluntary contributions received by Charitable or Religious Trust or Institution. Value of any perquisite, Profit in lieu of salary, Special Allowance or any other benefit received by an employee from his employer. Export Incentive. E.g. Duty Drawback. Interest, Salary, Bonus, Commission or Remuneration received by a partner of a firm from the firm. Capital Gains. Winnings from Lotteries, Crossword Puzzles, Races including Horse Races, Card Games, Gambling, Betting, etc. Sum received by the assessee from his employees towards Provident Fund, Superannuation Fund, etc. Any sum received under Keyman Insurance Policy including Bonus on such policy, Non-Compete Fees, Compensation for not sharing any Know-how, Patent, Trademark, Licence, Franchise, etc. Income from Other Sources.

Income from Illegal activities is taxable. Income need not be in cash, it may even be in kind.

Heads of Income
As per Section 14, income of an assessee is classified under the following five heads of income : Income from Salaries. Income from House Property. Profits and Gains of Business or Profession. Capital Gains. Income from Other Sources.

Total of incomes under all the five heads of income is known as Gross Total Income (GTI). Expenditure incurred to earn an income is deducted depending upon the head of income. Expenditure incurred to earn an exempt income is not allowed to be deducted.

Income Tax Rates For Individuals below 60 years, NR, HUF, BOI, AOP
Where the total income is below Rs. 2,00,000. Where the total income is between Rs. 2,00,001 and Rs. 5,00,000. Where the total income is between Rs. 5,00,001 and Rs. 10,00,000. Where the total income exceeds Rs. 10,00,000. Nil 10 per cent of the amount by which the total income exceeds Rs. 2,00,000. Rs. 30,000 plus 20 per cent of the amount by which the total income exceeds Rs. 5,00,000. Rs.1,30,000 plus 30 per cent of the amount by which the total income exceeds Rs. 10,00,000.

Income Tax Rates For resident individuals above 60 years

Where the total income is below Rs. 2,50,000. Where the total income is between Rs. 2,50,001 and Rs. 5,00,000. Where the total income is between Rs. 5,00,001 and Rs. 10,00,000. Where the total income exceeds Rs. 10,00,000. Nil 10 per cent of the amount by which the total income exceeds Rs. 2,50,000. Rs. 25,000 plus 20 per cent of the amount by which the total income exceeds Rs. 5,00,000. Rs. 1,25,000 plus 30 per cent of the amount by which the total income exceeds Rs. 10,00,000.

Income Tax Rates For resident individuals above 80 years

Where the total income Nil is below Rs. 5,00,000. 20 per cent of the Where the total income amount by which the is between Rs. 5,00,001 total income exceeds and Rs. 10,00,000. Rs. 5,00,000. Where the total income Rs. 1,00,000 plus 30 per exceeds Rs. 10,00,000. cent of the amount by which the total income exceeds Rs. 10,00,000.

Income Tax Rates For cooperative societies

where the total income 10 per cent of the total is below Rs. 10,000. income. where the total income Rs. 1,000 plus 20 per is between Rs. 10,000 cent of the amount by and Rs. 20,000. which the total income exceeds Rs. 10,000. where the total income exceeds Rs. 20,000. Rs. 3,000 plus 30 per cent of the amount by which the total income exceeds Rs. 20,000.

Income Tax Rates For Others

For Firms, LLPs, Local Authority, Domestic Company 30% on the whole of such income. For Foreign Company 40% on the whole of such income.

Alternate Minimum Tax

AMT is based on book profit and applies to all persons other than companies. AMT is calculated at 18.5% of Adjusted Total Income for persons claiming deduction under Section 10AA (Units in SEZ) or Chapter VIA (Sections 80A to 80U). ATI = Total income + Deductions under Section 10AA and Chapter VI-A. The tax calculated at 18.5% of ATI will be compared to the normal income-tax and higher of the two amounts will have to be paid. AMT will not apply if ATI of Individual, HUF, AOP or BOI is below Rs. 20 lakhs. AMT applies to all LLPs, Partnership Firms, Cooperative Societies irrespective of ATI. AMT paid over and above the normal tax liability can be carried forward for 10 years.

Surcharge
For domestic company having total income exceeding Rs. 1 crore Surcharge @ 5% on Income Tax. For foreign company having total income exceeding Rs. 1 crore Surcharge @ 2% on Income Tax.

Education Cess
For all assessees @ 3% on Income Tax plus surcharge. Education Cess @ 2%. Secondary and Higher Education Cess @ 1% on Income Tax.

Tax Planning
Tax Planning means a systematic arrangement of the financial affairs of a person to take advantage of the deductions, exemptions, rebates and reliefs allowed under the Income Tax Act, 1961. E.g. - Investing in PPF or ELSS (Tax Savings Mutual Funds) in order to get deduction under Section 80C is one of the ways of Tax Planning. Tax Planning is a legal and ethical way of reducing overall tax liability.

Tax Avoidance
Tax Avoidance means arrangement of affairs to avoid payment of tax, by using sham or hard to believe methods. E.g. A person claiming that he has received large sums of money from non-relatives on the occasion of his marriage. Tax Avoidance attempts to take undue advantage of legal loopholes and defeats the basic intention of the legislature behind the Statute. Tax Avoidance is legal but unethical.

Tax Evasion
Tax Evasion refers to illegal and unethical ways and means adopted by tax payers to evade tax E.g. Falsifying accounts, Concealing income, Inflating expenses. Tax Evasion is illegal as well as unethical.