Q. Define income under the Income Tax Act, 1961. “The incidence of tax depends upon the residential status of an assessee.” Discuss.
Meaning of Income under the Income Tax Act, 1961
(i) Profits and gains;
(ii) Dividends (voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes.)
(iii) The value of any perquisite or profit in lieu of salary taxable under clauses (2) and (3) of section 17;
(iv) The value of any benefit or perquisite, whether convertible into money or not, obtained from a company either by a director or by a person who has a substantial interest in the company, or by a relative of the director
(v) Any sum chargeable to income-tax under clauses (ii) and (iii) of section 28 or section 41 or section 59;
(vi) Any capital gains chargeable under section 45;
(vii) The profit and gains of any business of insurance carried on by a mutual insurance company or by a co-operative society;
(vii) Any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or gambling or betting of any form or nature whatsoever;
(ix) any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set-up under the provisions of the Employees’ State Insurance Act, 1948 (34 of 1948); or any other fund for the welfare of such employees;
(x) Any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy.
(xi) Any sum referred to in clause (xii) of section 28.
(xiii) Receipts without consideration – any sum received u/s 56(2) (v) where any sum of money exceeding Rs. 50,000 is received by an individual or HUF from any person on or after 1.9.2009. However, this clause is not applied if money received from relative or on the occasion of marriage or under will.
Incidence of Taxes (Scope of Total Income)
As per Section 5 of the Income Tax Act 1961, the incidence of tax on a taxpayer depends on his residential status and also on the place and time of accrual or receipt of income. To understand the relationship between residential status and tax liability, one must understand the meaning of “Indian income” and “Foreign income”. An Indian income is one which satisfies any of the following conditions:
1) If income is received or deemed to be received in India during the previous year and at the same time it accrues or arises or is deemed to accrue or arise in India during the previous year, or
2) If income is received or deemed to be received in India during the previous year but it accrues or arises outside India during the previous year, or
3) If income is received outside India during the previous year but it accrues or arises or is deemed to accrue or arise in India during the previous year.
Similarly, foreign income is one which satisfies both the following conditions:
1) Income received or deemed to be received outside India; and
2) Income accrued or deemed to be accrued outside India.
Indian income is always taxable in India irrespective of the residential status of the taxpayer. Foreign income of an individual and HUF from a business controlled or a profession set up in India will be taxable in the hands of resident and ordinarily resident and resident but not ordinarily resident but not in the hands of a non-resident. However, Foreign income from a business controlled or a profession set up outside India will be taxable only in the hands of resident and ordinarily resident and not in the hands of a resident but not ordinarily resident or a non-resident person.
Foreign income of any other taxpayer (Company, Firm, AOP, BOI etc.) will be taxable if the taxpayer is resident in India and will not be taxable in case the taxpayer is non-resident in India.
Tax incidence of different taxpayers is as follows—
|
Particulars |
ROR |
RNOR |
NR |
|
Income received in India Income deemed to be received in India Income accruing or arising in India Income deemed to accrue or arise in India Income received/ accrued outside India from a business or profession controlled in India Income received/ accrued outside India from a business controlled outside India |
Yes Yes Yes Yes Yes Yes |
Yes Yes Yes Yes Yes No |
Yes Yes Yes Yes No No |
Q. Define the terms “Last year” and “year of testing”? Income tax is levied on income from the previous year. Do you fully agree with this statement? If not, what are the differences?
Annual Report on Income Taxes
Last Year: [Sec. 3]: As the word, ‘Past’ means ‘coming before’, so it can easily be said that the Past Year is the Pre-Financial Year Examining e.g. Audit Year 2020-2021 Last year should be the Financial Year ending 31 March 2020. The term of the previous year is very important because the revenue earned in the previous year will be taxed in the year of assessment. The simple rule is that last year's income is taxable in its due year. Currently, the previous year 2019-2020 (1-4-2019 to 31-3-2020) is underway.
Description of the Income Tax Year of the Year
Year of Testing: [Episode. 2 (9)]: “Exam Year” means a period of 12 months beginning on the 1st day of April each year. In India, Government. maintains its accounts for a period of 12 months i.e. 1st April to 31st March annually. Thus it is known as the Financial Year. The Income Tax Department also selected the same year in its Examination process.
Audit Year of Government Financial Year. of India where the income of a related person last year is tax deductible. Every person who is liable to pay the tax under this Act, submits a Return of Income by the due dates. These Refunds are reviewed by Revenue Department Officials and Officials. This process is called Testing. Under this Reimbursement Examiner is inspected and verified, tax is calculated and compared with the amount paid and an inspection order is issued. The year in which the whole program was implemented is called the Examination Year. Currently, the Test Year 2020-2021 (1-4-2020 to 31-3-2021) is underway.
The exception to the income tax law is levied on income from the previous year
As a general rule, income earned in any previous year is taxable in the next inspection year. In the following cases, however, income is taxable for the year in which it is received.
1. Shipping Business Salary (Section 172): In the event that a non-citizen shipping company, without a representative in India, earns revenue from any Indian port will not be allowed to leave the port until the income tax has expired. paid or other tax plans are made this year itself.
2. If people leave India permanently [Article 174]: If the Examiner has reason to believe that a person will leave India permanently, we may ask him to pay tax on the income earned in the previous year to this day. by leaving the country.
3. An assessment of the merits of a person or body of persons or of a decision-maker designated for an event or purpose [Section 174A]: When it appears to the Inspector General that any human organization or body of persons or a person of the court. designed or established or consolidated for a specific purpose and for that purpose, the total income of that person or body or court person, from the end of the previous year to the date of its dissolution, will be taxed in that year of assessment.
4. When people attempt to transfer their property [Section 175]: If the Auditing Officer considers that any person may sell, transfer, dispose of or dispose of any of his or her property in order to avoid the payment of any tax. on credit, he may apply for a refund and pay taxes during the past year itself.
5. Discontinued Business [Section 176]: In the event that any business or sector is discontinued last year, the period revenue from the end of the previous year until the date of its termination will be tax deducted in the previous current year itself. The power of the Auditor - General to exercise the provisions of section 176 is optional and in relation to the other provisions mentioned above, is mandatory.
In the above cases, the previous year's income may be taxed as revenue for the year before the general inspection by amounts applicable to that year of assessment.
[Make brief notes (a) In the year of inspection and in the previous year (b) Income tax (c) Estimated rate of return (d) Capital assets (e) Agricultural revenue (f) Person and Assessment (g) Income versus capital expenditure. (h) Heads of Income, Income and Total Income (i) Income Receipts (j) Income Receipts against Revenue (k) Tax Returns (l) Calculation method (m) Tax avoidance vs. Tax evasion (n) NRI, Ordinary and non-resident (o) Income tax authorities (p) CBDT (q) Income tax for the year of assessment 2020 - 2021 (See your letter or contact your teacher) (r) No. Permanent account (PAN)]
(b) Income Tax Tax (Episode 4)
Section 4 is the charging section of the Income-Tax Act, 1961 (the Act). Provides for payment and collection / payment of Income Tax India. The key provisions of this section are:
Ø Where any By-law authorizes any year of inspection such income tax shall be levied at any rate or rate,
Ø Income tax on that rate or rates (including additional taxes) will be levied for that year in accordance with all the provisions of the Act.
Ø About Last Year's Total Income for Everyone
Ø However, if in the event of any provision of the Act, Income Tax India is charged in respect of non-revenue for the previous year, it will be charged accordingly.
Ø Income-tax levies as above will be deducted from the source or paid in advance if required under any of the provisions of the Act.
(c) Maximum marginal dose
The maximum Marginal rate is the income tax rate which includes the highest operating income in the case of an individual, AOP or BOI as defined in the relevant last year's Finance Act. Currently, the maximum marginal rate is 30% without additional charge. The highest rated estimates of the various populations are listed below:
a) For a person with a gross income of less than or equal to Rs. 50 lakhs - 31.2% including additional charge and cess.
b) For a person with a total income of more than 50 lakhs but less or equal to Rs. 1 Crore - 34.32% including additional charge and cess.
c) For a person with a total income of more than 1 million but less than or equal to Rs. 2 Crores - 35.88% including additional charge and cess.
d) For a person with an income of more than 2 crores but less than or equal to Rs. 5 Crores - 39% including additional charge and tax.
e) For a person with a gross income of more than 5 - 42.44% including additional payments and taxes.
(d) Description of Primary Assets under Section. 2 (14) means:
Financial asset means property of any kind held by an auditor, whether related to or not related to his or her business or occupation. Includes industry and equipment, property - whether business or residential properties, all business assets, grants, patents etc. This definition of a large asset is very broad and encompasses all types of properties, whether movable or immovable, tangible or intangible. , modified or floated but does not include the following.
1. Retail stores, grocery stores or immature items reserved for business or industry.
2. Movable personal properties i.e.. furniture, cars, refrigerators, musical instruments etc. reserved for use by the person being tested or his or her family. But personal property does not include the following:
Ø Jewelry
Ø Residential property
Ø A collection of archeology, paintings, drawings, paintings, and any artwork.
3. Rural Agricultural Land:
Ø Land under the control of a municipality or district board with a population of 10,000 or more.
Ø Land 8 km from the edge of the area.
4. 6% Gold Bonds, 1977 or 7% Gold Bond, 1980 or Gold Bond National Defense, 1980 issued by the Central Government.
5. Gold bonds issued by the Government of India including gold deposit bonds issued under the gold deposit system, 1999 announced by the Central Government.
6. Special Bearer Bonds, 1991 issued by the Government of India.
7. Deposit certificates issued under the Gold Money Making Program, 2016 w.e.f. Test year 2017-18
(e) Agricultural income [Section 2 (1A)]
Agricultural income is fully exempt from tax / s 10 (1) and therefore does not form part of the gross revenue. In terms of Section 2 (1A), agricultural income includes:
a) Any rent or income derived from land in India and used for farming;
b) Any money received from the land through agriculture or process used to make the product fit the market or for the sale of the product by the farmer or the recipient of the rent in kind.
c) Any income derived from any property provided that the following conditions are met:
Ø The building is near or near the farm area;
Ø It remains the farmer or the recipient of the rent or income
Ø Used as a residence or barn or outdoor house;
Ø Land is assessed for the benefit of the land and is not somewhere.
(g) Income Compared to Capital Costs
Revenue Expenses: Revenue is the amount of money that is paid in the day-to-day operations of a company. In most cases, expenditure involves the purchase of goods and services to be used during the financial year. Revenue does not improve or enhance a company's cash-generating capacity but rather leads to the maintenance of the organization's current capacity to generate revenue.
All revenue in kind is recorded in the profit and loss account such as operating costs, marketing and sales costs and administration costs. Revenue costs play a role in determining a company's profit or loss.
Income expenses are common and recurrent and other examples of income costs include pay and staff payments, heating and lighting, depreciation, legal and labor costs, travel and food costs, insurance, administration, administration costs, multiple marketing and public relations costs. , audit fees, office supplies, staff training costs, staffing costs and small or insignificant equipment.
Capital Expenditure: Capital expenditure represents the cost of fixed assets. Capital expenditure can be the use of resources in investing in the long-term capacity of a company's cash-generating capacity. Investing in fixed assets will lead to an increase or improvement in a company's investment capacity. Capital expenditure can also be in the form of significant acquisitions or purchases of more expensive equipment that will last longer than the financial year.
All major expenses are recorded on the balance sheet. Capital expenditure will be reduced or reduced annually to ensure that costs are charged to the profit and loss account to reflect the use of capital expenditure by the company.
Some examples of major costs include land and building costs, equipment and tools, vehicles, computer equipment, product development costs, finance leases and software development costs.
Common principles include the difference between the cost of income and income
In determining how much expenditure is and how much revenue is inherent the following factors should be considered.
1. Acquisition of Fixed Assets v. General Expenditure - Capital expenditure is incurred in obtaining the expansion or development of a fixed asset, while the cost of revenue is incurred in the ordinary course of business as business expenses.
2. Several years ago compared to one year ago- Capital expenditure produces profits for the past few years, and revenue expenditure is spent over the past year.
3. Improvement v. Maintenance- High costs make improvements in business profitability. Profit costs, on the other hand, retain the ability to make a profit for the business.
4. Repetition v. Recurring - spending is usually non-recurring income, and revenue is recurring expenditure.
(h) Heads of Income, Total Income and Total Income
Section 14: In terms of section 14, all income, for tax purposes, will be divided under the following income categories.
(i) Income under the head Salary (Sections 15 to 17),
(ii) Income from property of the House (Sections 22 to 27),
(iii) Benefits and benefits of business or profession (Sections 28 to 44)
(iv) Major Benefits (Sections 45 to 55)
(v) Revenue from other sources (Sections 56 to 59)
Earnings earned under different headings are calculated separately and aggregated. The total amount of income calculated under the 5 headers, after using the clubbing provisions and making startup changes and further losses, is known, as gross total income (GTI) [Sec. 80B]
From all the income listed above, the deductions allowed under Section 80C to 80U are deducted to determine the total revenue and from this income is calculated.
(i) Cash receipts
A receipt instead of a source of income is a receipt for money. Eg, forfeiture compensation is a cash receipt. A large receipt is usually a fixed amount. For example, the selling price in a sale of goods, which assesses the use as a fixed asset in his business is a receipt for money. Tax receipts are tax-free. That is why the amount earned by the insurance company during maturity is not taxable under Section 10 (10D). Similarly, loans taken are not taxable. However, some tax receipts are taxable as provided specifically for the definition of Revenue as a tax on Revenue from the sale of Capital Assets.
(j) Revenue Vs Capital Receipts:
Any cash receipt can be classified as income or cash. Income receipts are always fully taxable unless a certain exemption is granted. Tax receipts are tax-free. That is why the amount earned by the insurance company during maturity is not taxable under Section 10 (10D). Similarly, loans taken are not taxable. However, some tax receipts are taxable as provided specifically for the definition of Revenue as a tax on Revenue from the sale of Capital Assets.
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DIFFERENCE BETWEEN CAPITAL RECEIPT AND REVENUE RECEIPT
|
Capital Receipt |
Revenue Receipts |
|
Ø A capital receipt is generally referable to fixed capital. E.g., Sale price on the sale of assets, which assessee uses as a fixed asset in his business is a capital receipt |
Ø Revenue receipt refers to circulating capital. E.g., the Sale price of the stock in trade is a revenue receipt |
|
Ø Payment received towards the compensation for the extinction of a profit-earning source is a capital receipt |
Ø Payment received to compensate the loss of earnings is a revenue receipt |
|
Ø A receipt in place of the source of income is a capital receipt. E.g., Compensation for the loss of employment is a capital receipt. |
Ø A receipt in place of income is a revenue receipt |
|
Ø Capital receipts are exempt from tax unless they are expressively taxable like in the case of capital gains |
Ø Revenue receipts are always taxable unless expressly exempt from tax under section 10 |
(k) Tax Return
Tax form or forms used to file income tax with the Internal Revenue Service (IRS). Taxes are usually set in the worksheet format, where the revenue calculations used to calculate the tax liability are recorded in the documents themselves. Taxes should be levied annually on a person or business that has received income during the year, either in normal income (earnings), interest, dividends, capital gains, or other profits. Return of excess taxes paid in a given tax year; this is more accurately known as "tax refunds".
Tax form or forms used to file income tax with the Internal Revenue Service (IRS). Taxes are usually set in the worksheet format, where the revenue calculations used to calculate the tax liability are recorded in the documents themselves. Taxes should be levied annually on a person or business that has received income during the year, either in normal income (earnings), interest, dividends, capital gains, or other profits. Return of excess taxes paid in a given tax year; this is more accurately known as "tax refunds".
(l) Accounting Method [Section 145]
In terms of section 145, for the purposes of income tax, only one of the following two calculation methods may be followed:
a) Mercantile System;
b) Financial plan.
In addition, business and employment profits will need to be calculated in accordance with the accounting standards that the Central Government may from time to time determine. The Central Government has since announced the following two accounting standards to be followed by all auditors following the mercantile accounting system:
a) Accounting Standard I related to disclosure of accounting policies.
b) Accounting Standard II relating to prior period disclosure and irregularities and changes in accounting policies.
(m) Tax Avoidance, Tax Avoidance, Tax Reduction and Tax Planning
Acceptable ways to reduce tax debt can be broadly categorized into four categories: "Tax Avoidance"; Tax Avoidance ”,“ Tax Reduction ”,“ Tax Planning ”. The difference between the four approaches is sometimes blurred by the tax authorities and / or taxpayers.
Tax Avoidance: The term tax evasion is often used to mean 'illegal schemes where the tax liability is hidden or ignored which means the taxpayer pays less than the legal obligation to pay or by concealing income or information to tax authorities. Thus, here the tax debt is reduced by "illegal and fraudulent" means. For example: to say the least bit of income.
Tax Avoidance: Tax avoidance refers to legal means to avoid or reduce tax liability, which could be obtained otherwise, by taking advantage of a particular offer or lack of legal provision. So, in this case, the taxpayer is trying to reduce his tax debt but here the arrangement will be legal, but it may not be in accordance with the purpose of the law. Thus, in this case, the taxpayer does not conceal important facts but may be able to avoid or reduce the tax liability due to certain inconveniences or otherwise. Example: misinterpreting the provisions of IT Act.
Tax Reduction: "Tax deduction" is a situation in which a taxpayer takes advantage of the financial benefits provided by the tax law by actually moving to the circumstances and economic consequences associated with a particular tax law. A good example of tax cuts is the establishment of a taxpayer business in a particular area such as the Special Economic Zone (SEZ).
Tax Planning: Tax Planning is defined as "personal business planning and / or private affairs to reduce tax debt". For example spending money withholding.
(n) Income Tax Authority
Section 116 of the Income Tax Act, 1961 provides for the administrative and judicial authorities with regard to the administration of this Act. The Direct Tax Laws Act, 1987 brought about major changes in the organizational structure. The implementation of the Act is in the hands of these authorities. Changes in the appointment of certain authorities and the creation of new posts in the building are key elements of the amendments made by the Direct Tax Laws Act, 1987. The new feature of the authorities is clearly shown in the chart on the top page. These authorities are divided into two main divisions:
(i) Administration [Income Tax Authority] [Episode. 116]
a) Central Standard Tax Board established under the Central Revenue Board Act, 1963 (54 of 1963),
b) Directors-General of Income Taxes or High Tax Commissioners,
c) Tax Directors-Income or Income Tax Commissions or Income Tax Commissions (Complaints),
d) Additional Tax Directors-Income or Additional Income Tax Commissioners or Additional Income Tax Commissioners (Complaints),
e) Joint Tax Directors or Joint Tax Commissioners.
f) Deputy Tax Directors-Income or Deputy Income Tax Commissioners or Deputy Income Tax Commission (Complaints),
g) Assistant Director of Income Taxes or Assistant Tax Commissioners,
h) Tax officials,
i) Tax Return Officers,
j) Income Tax Inspectors.
(ii) Inspecting Officer [Ex. 2 (7A)]
"Auditing Officer" means the Assistant Commissioner or Deputy Commissioner or Assistant Director or Deputy Director or Tax Officer who has been given the appropriate administrative instructions or directions issued under subsection (1) or subsection (2) section 120 or any other provision of this Act, and the Joint Commissioner; or the Joint Director directed under subsection (b) of subsection (4) of that section to exercise or perform all any powers and functions conferred or imposed on him or her by the Auditing Officer under this Act;
(o) Central Board of Direct Taxes
The Central Board of Direct Taxes (CBDT) is the chief executive officer. It is under the full control of the Central Government. It is empowered to perform all the functions set out in the Act and those delegated to it by the Central Government. The Central Direct Tax Board consists of the Chairperson and the following six Members:
a) Chairperson
b) Member (Income)
c) Member (Legislation & Computerization)
d) Member (Staff and Monitoring)
e) Member (Inquiry)
f) Member (Income)
g) Member (Audit & Judicial)