Basic Principles of Income-tax

Loading...

Basic Principles of Income‐tax Presented by ANIMESH MODI SEPTEMBER 2015

1

ƒ ƒ ƒ

ƒ ƒ ƒ

Income‐tax and Death are the only two inevitable things in  life In India, taxes were levied even in ancient times – refer to  Manu Smriti & Arthashastra Why to Pay Tax ?  “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 thousand fold“.  ‐‐Kalidas in Raghuvansh eulogizing KING DALIP.  Income‐tax Act, 1922 Income‐tax Act, 1961 Income‐tax Rules, 1962 2

ƒ

In the past we had very high tax rates. 

ƒ

Now, the rates are quite moderate and comparable with  several other countries.

ƒ

We also had very high wealth‐tax rates, estate duty, gift tax.  Now there is a sea‐change.

3

Countries India Brazil China Denmark Japan Netherland Russia UK USA

Tax Rates (%) 10 – 30 7.5 ‐ 27.5 3 – 45 38 – 65 5‐ 50 5.85 – 52 13 0 – 45 0 – 39.6 Source: http://www.worldwide-tax.com 4

ƒ

Came into force w.e.f. 1st April, 1962

ƒ

Extends to whole of India

ƒ

Consists of more than 300 sections, 23 Chapters and 14  schedules. The number of sub‐sections, provisos and  Explanations runs into several hundreds

5

ƒ

The Act determines which persons are liable to pay tax and in  respect of which income. The sections lay down the law of  income tax and the schedules lay down certain procedures  and give certain lists, which are referred to in the sections. 

ƒ

However, the Act does not prescribe the rates of Income Tax

6

ƒ

The rates of Income‐tax are prescribed every year by the  Finance Act (popularly known as “The Budget”)

ƒ

At present, the tax rates are same for all corporate assessees  and partnership firms (30%) and there are different slabs for  Individual tax payers 

ƒ

We also have surcharge for corporate assessees and  education cess for all assessees

7

ƒ

The Act empowers the CBDT to formulate rules for  implementing the provisions of the Act. Rules can be  amended more easily than the Act ‐ by merely publishing a  notification in the Official Gazette of the GOI.

ƒ

To amend the Act, an amendment Bill has to be passed in the  Parliament. 

ƒ

In case of a conflict between the Act and the Rules, the  provisions of the Act shall prevail.  8

ƒ

CBDT issues circulars on certain matters for the guidance of  the Tax Officers and the general public 

ƒ

Circulars are binding only on the Income Tax Officers

ƒ

Circulars cannot change the provisions of law; they can  merely clarify the law or relax certain provisions in favour of  the taxpayers

ƒ

In event of a dispute, the Courts are not bound by the  circulars

9

ƒ

Case Laws are the decisions of the various Income‐tax  Appellate Tribunals (ITAT) and the High Courts (HC) and the  Supreme Court (SC)

ƒ

Decisions of the SC are binding on all lower Courts and tax  authorities in India

ƒ

HC decisions are binding only in the states which are within the  jurisdiction of that particular High Court

ƒ

Decisions of one HC has persuasive powers over other HCs  when deciding similar issues

ƒ

ITAT can be a single member bench (SMC) or a two member  bench or a Special Bench or a Third Member Bench 10

ƒ

Section 2 gives definitions of various terms referred to in the  Act

ƒ

Definitions can be inclusive definitions or exclusive definitions

ƒ

Definition of one term may lead to the definition of another  term

11

ƒ

Some of the important definitions contained in the  Act are of: • Person • Assessee • Assessment Year • Previous Year • Assessment • Income • Dividend 12

ƒ ƒ ƒ ƒ ƒ ƒ ƒ

Assessee Assessment Year (A.Y. 2014‐15) Previous Year (F.Y. 2013‐14) Residential Status Gross Total Income Deductions Total Income

13

ƒ

Means a person by whom any tax or any other sum of money is payable under this Act, and includes – ▪

Person in respect of whom any proceedings under this Act has been taken for assessment of his income



Deemed assessee under provisions of this Act



Any person deemed to be an assessee in default under any provisions of this Act

14

ƒ

Assessment year means the period starting from  April 1 and ending on March 31 of the next year.

ƒ

E.g. ‐ Assessment year 2014‐15 which commenced on  April 1, 2014 and will end on March 31, 2015.

15

ƒ

The financial year immediately preceding the  assessment year 

ƒ

E.g.: For the assessment year 2014–15, the previous year is  F.Y. 2013‐14

ƒ

In case of a business or source of income, the  previous year commences from the date of set up of  business or the date on which the source of income  comes into existence

16

ƒ

Residential status of an assessee is important in determining  the scope of income on which income tax has to be paid in  India. 

ƒ

The different types of Residential Status are:‐ ƒ Resident (R)  ▪ An individual or HUF assessee who is resident in India may  be further classified into  ▪ resident and ordinarily resident  (ROR) and  ▪ resident but not ordinarily resident (NOR). ƒ Non Resident (NR)

ƒ

To be determined in each previous year (1 April to 31 March  next)

17

Importance of Residential Status: Resident – World income is taxable in India Non Resident – Only income arising or accruing in India is taxable in India ƒ Resident but Not Ordinarily Resident – Income accruing or arising outside India may also be taxable in India ƒ ƒ

18

An individual is said to be resident in India in any previous year, if he satisfies any of the 2 basic conditions – a. Physical presence in India for 182 days or more in a 

previous year OR a. Physical presence in India for 60* days or more in  the previous year and 365 days or more during the  4 years preceding the previous year * See next slide 19

Section 6 - Resident * the above is subject to the following i.

Citizen leaves for employment or as member of  crew of an Indian ship – instead of 60 days, it is 182  days

ii.

Citizen or Person of Indian Origin already abroad  comes on a visit ‐ instead of 60 days, it is 182 days

20

Individual ‐ Resident but Not Ordinarily Resident  Satisfies any one Basic condition and two Additional conditions – a.

Such person has been a non resident in India in at  least 9 out of 10 previous years preceding the  relevant previous year; or

b.

The person has been in India for a period of 729 days  or less during 7 years preceding the relevant previous  year 21

Assessee

Basic Condition

Resident and  He must satisfy at least one of  Ordinarily Resident the basic conditions.

Additional Condition

Must NOT satisfy both the  additional conditions

Not Ordinarily  Resident

Must satisfy at least one of the  basic conditions.

Must satisfy either of  the  additional conditions

Non‐Resident

Should not satisfy any of the  basic conditions.

Not applicable

22

ƒ

Hindu Undivided Family ƒ Resident unless Control and Management of affairs 

wholly outside India ƒ R‐NOR if Manager (Karta) is a non resident in India in 9  out of 10 preceding previous years or is in India for 729  days or less in 7 preceding previous years ƒ

Company ƒ Resident in India

▪ If an Indian Company – Section 2(26)   ▪ If Control and Management of its affairs is situated  wholly in India  23

ƒ

Firm, Association of Persons and Any other person ƒ Resident unless control and management of its 

affairs is situated wholly outside India

24

Basic principles of Incometax • What is income? • Distinction between Taxable Income and Taxfree Income • Heads of Income • Sources of Income • Gross Total Income • Deductions • Total Income • Tax on Total Income 25

The scope of Total Income depends on the  Residential Status of the tax payer. The incidence of  tax under different circumstances is given in the  following table

26

Scope of Total Income ROR

RNOR

NR

Income received in India

Yes

Yes

Yes

Income deemed to be received in India

Yes

Yes

Yes

Income accruing or arising in India

Yes

Yes

Yes

Income deemed to accrue or arise in India

Yes

Yes

Yes

Income received/ accrued outside India from a business in India

Yes

Yes

No

Income received/ accrued outside India from a business controlled outside India

Yes

No

No

27

Definition of Income:

• Income is defined to “include” several items • It is not an exhaustive definition • Any income which is not specifically exempt is taxable

28

ƒ ƒ ƒ ƒ ƒ ƒ ƒ

Agricultural income Receipts by a member from a HUF Gratuity received on retirement, termination or death Commuted Pension Exemption of amount received by way of encashment of  unutilized earned leave on retirement. Dividend Income Any allowance to the extent not taxable

ƒ

Amount received from insurance policies on maturity of LIC  policies (subject to conditions prescribed)

ƒ

Income from provident funds 29

ƒ

Voluntary Retirement Receipts to the Maximum limit of Rs.  5,00,000 (subject to conditions)

ƒ ƒ ƒ ƒ ƒ

Payments from Superannuation Fund House Rent Allowance (subject to conditions) Educational Scholarships Exemption in respect of clubbed income of minor Long Term Capital Gains on Transfer of listed Equity Shares  and Units of Equity Oriented Mutual Funds

30

ƒ

Five main Heads of Income: ƒ Salaries ƒ Income from House Property ƒ Profits and Gains of Business or Profession ƒ Capital Gains ƒ Income from Other Sources

31 31

ƒ

Under each Head of Income, there could be  multiple Sources of Income

ƒ

For example, a person could be employed with more  than one employer. In such a case, each employment is  a different Source of Income under the Head of Salaries

32 32

Income is taxable under head “Salaries”, only if there exists Employer ‐ Employee Relationship between the payer and the payee. The following incomes shall be chargeable to income‐tax under the head “Salaries”:‐ 1.Salary Due 2.Advance Salary [u/s 17(1)(v)] 3.Arrears of Salary Note: (i)Salary is chargeable on due basis or receipt basis, whichever is earlier. (ii)Advance salary and Arrears of salary are chargeable to tax on receipt basis only. 33

Properties can be broadly classified into: ƒ

Let out property

ƒ

Self occupied property

ƒ

Deemed to be let out

34

ƒ

The annual value of property consisting of any  buildings or lands appurtenant thereto of which  the assessee is the owner

ƒ

other than such portions of such property as he  may occupy for the purposes of any business or  profession carried on by him

35

Determination of Annual Value This involves three steps: Step 1 – Step 2 –

Determination of Gross Annual Value (GAV) GAV minus municipal tax paid by the owner  during the previous year Step 3 – Balance = Net Annual Value (NAV) Step 4 – Reduce 30% of NAV as an ad‐hoc Standard  Deduction Step 5 – Reduce Interest, if any, paid on a loan taken to  buy/construct the property 36

Business : “Business” simply means any economic activity carried on for earning profits. Sec. 2(3) has defined the term as “ any trade, commerce, manufacturing activity or any adventure or concern in the nature of trade, commerce and manufacture”. Profession : “Profession” may be defined as a vocation, or a job requiring some thought, skill and special knowledge like that of C.A., Lawyer, Doctor, Engineer, Architect etc. So profession refers to those activities where the livelihood is earned by the persons through their intellectual or manual skill. 37

Capital Gain’s tax liability arises only when the following conditions are satisfied: ƒ ƒ ƒ ƒ ƒ

There should be a capital asset. The capital asset is transferred by the assessee Such transfer takes place during the previous year. Any profit or gains arises as a result of transfer. Such profit or gains is not exempt from tax under section 54, 54B, 54D, 54EC, 54F, 54G, 54GA and 54GB 38

Income of every kind, which is not to be excluded from the  total income and not chargeable to tax under any other  head, shall be chargeable under the head “Income from  Other Sources”.  List of items chargeable under this head:‐ Dividends from Co‐op. Banks/Foreign companies Winning from lotteries, crossword puzzles, races,  gambling, betting of any form ƒ Interest on securities ƒ Income from plant, machinery or furniture on hire ƒ ƒ

39

Any sum received under a Keyman insurance policy Any gift exceeding Rs. 50,000 received from non  relatives ƒ Interest on foreign government securities ƒ Agriculture income received outside India ƒ Director’s Sitting Fees ƒ ƒ

40

ƒ

Any Individual whose total income exceeds the  threshold limit is chargeable to tax in India and has  to file return of income

ƒ

All corporate tax payers and all partnership firms  have to file the return irrespective of the level of  income

ƒ

Different forms and due dates prescribed for the  returns 41 41

ƒ

The total income of an assessee is to be computed  after making deductions permissible u/s 80C to 80U.  However, the aggregate amount of deductions  cannot exceed the Gross Total Income.

ƒ

Deductions are allowed under chapter VI‐A of  Income Tax Act.

42

Section 80C of the Income Tax Act allows certain  investments and expenditure to be deducted from  total income up to the maximum of 1lac. The total  limit under this section is Rs. 100,000 (Rupees One lac)  which can be any combination of the below: ƒ ƒ ƒ ƒ ƒ

Contribution to Provident Fund or Public Provident fund Payment of Life Insurance Premium Investment in Pension Plans Investment in Equity Linked Savings Scheme of Mutual  Funds. Investment in NSC 43

ƒ ƒ ƒ ƒ

Tax Saving Deposits provided by Banks Payment towards principal repayment of housing loans Payment of Tuition fees of Children Post Office Term Deposit

This investment can be from any source and not necessarily from income chargeable to tax.

44

Deduction is available in respect of the amount paid to effect or to keep in force health insurance under a scheme – ƒ made by General Insurance Corporation of India (GIC) and approved by Central Government; or ƒ made by any other insurer and approved by IRDA ƒ Deduction shall be to the extent of lower of – ƒ Actual Health insurance premium paid by any mode other than cash, or ƒ Rs. 15,000 (Rs. 20,000 if the insured is a senior citizen). ƒ Deduction on account of expenditure on preventive health check‐up (for self, spouse, dependent children and parents) shall not exceed in the aggregate Rs.5,000. This payment can be made in cash. ƒ The deduction for preventive health‐checkup is included in the overall limit of Rs. 15,000 / Rs. 20,000 as the case may be ƒ

45

This section has been inserted into the Income‐tax Act  with effect from Assessment Year 2013‐14 i.e. F.Y. 2012‐ 13. ƒ This section provides deduction to an individual or a  Hindu undivided family in respect of interest received on  deposits (not being time deposits) in a savings account  held with banks, cooperative banks and post office.  ƒ The deduction is restricted to Rs.10,000 or actual  interest whichever is lower. ƒ

46

Basic difference between Exemptions and Deductions Exemptions Incomes which are exempt u/s 10 will not be included while computing total income

Deductions Incomes from which deductions are allowable under Chapter VI-A will first be included in the gross total income and then the deductions will be allowed

47

ƒ ƒ ƒ ƒ ƒ ƒ

Scrutiny assessments Appeals to CIT(A) Appeals to ITAT Appeals to HC Appeals to SC Departmental appeals

48 48

ƒ

In simple terms, TDS is the tax getting deducted from  the person (Employee/ Deductee) by the person paying  such amount (Employer/Deductor)

ƒ

Different sections and rates of tax for different type of  payments.

ƒ

A tax deductor is require to pay to the Central  Government the amount so deducted and issue TDS  certificate to the deductee within specified time and in a  specific format. 49 49

ƒ ƒ ƒ ƒ ƒ ƒ ƒ ƒ

192   – Salaries 194A – Interest 194C – Contracts 194H – Commission 194I – Rent 194IA – Purchase of Certain Immovable Property 194J – Professional Fees 195  – Payment to Non‐Residents (other than  salaries) 50 50

Total Income

Tax Payable

0 – 2,00,000

NIL

2,00,001 – 5,00,000

10% of income in excess of Rs. 2.00 lakh Less : Tax credit of upto Rs. 2,000/-.

5,00,001 – 10,00,000

30,000 + 20% of income in excess of Rs. 5,00,000

Above 10,00,000

130,000 + 30% of income in excess of Rs. 10,00,000

51

Total Income

Tax Payable

0 – 2,50,000

NIL

2,50,001 – 5,00,000

10% of income in excess of Rs. 2,50,000 Less : Tax credit of upto Rs. 2,000/-.

5,00,001 – 10,00,000

25,000 + 20% of income in excess of Rs. 5,00,000

Above 10,00,000

125,000 + 30% of income in excess of Rs. 10,00,000

52

Total Income

Tax Payable

0 – 5,00,000

NIL

5,00,001 – 10,00,000

20% of income in excess of Rs. 5,00,000

Above 10,00,000

100,000 + 30% of income in excess of Rs. 10,00,000

53

If you need any clarifications, write to: [email protected] (m) - 9099377733 54

Loading...

Basic Principles of Income-tax

Basic Principles of Income‐tax Presented by ANIMESH MODI SEPTEMBER 2015 1 ƒ ƒ ƒ ƒ ƒ ƒ Income‐tax and Death are the only two inevitable things in ...

2MB Sizes 35 Downloads 14 Views

Recommend Documents

basic principles
manuals or other documents, as a good or rather problematic example, this does not represent a judgement of ...... (http

BASIC PRINCIPLES OF CONTRACT DRAFTING
Section M: Negotiating and drafting exercise: Contract for International Sale of Goods. Section N: Further exercises ...

SOME BASIC PRINCIPLES OF DEMOCRACY
In a democracy, every citizen has certain basic rights that the state cannot take away from them. ... According to this

Basic Principles and Requirements
III1_2 Basic Principles and Requirements for Emergency Preparedness and Response. 2. Introduction. ○ In emergency dose

SALES & MARKETING basic principles
11. DECISIONAL MARKETING. • STRATEGIC. - Enterprise role. - Enterprise positioning. - Product. • OPERATIVE. - Commun

Basic Marketing Principles
Define “marketing” in official and “real world” terms. • List at least five viable market segments. • Differ

Basic Hydraulic Principles - Dynatech
Typical coefficient values for different weir shapes, as well as variations in the equation, can be seen in the previous

Basic Accounting Principles - NIOS
5.0 INTRODUCTION. We have studied economic activities which have been converted into business activities. In business ac

Principles of Insurance - 7 Basic General Insurance Principles
Mar 23, 2011 - The main objective of every insurance contract is to give financial security and protection to the insure

Basic Principles Of Information Protection - MIT
3) Design Principles: Whatever the level of functionality provided, the usefulness of a set of protection mechanisms dep