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Q: 3. What are the different types of income taxes?

Ans. There are various types of income taxes, including:- Personal income tax: Imposed on the income earned by individuals.- Corporate income tax: Imposed on the profits earned by businesses.- Capital gains tax: Levied on the profits made from the sale of certain assets, such as stocks or real estate.- Dividend tax: Tax on the dividends received by shareholders from corporations.- Self-employment tax: Paid by individuals who work for themselves, including freelancers and independent contractors.

Concept of Income

Computation of Income

Revenue Receipt	Capital Receipt
(-) Revenue Expenditure	(-) Capital Expenditure
Income	Income

Meaning of revenue receipt and capital receipt

You get something	from	Source of Income
Fruits	from	Trees
Crops	from	Field
Cloths	from	Machinery
Salary	from rendering of	Services
Rent	from	House Property
Business income	from	Business or Profession
Interest	from	Investments, Loan, Bonds or Debentures
Dividend	from	Shares
Royalty	from	Knowledge

Revenue

receipt

Every revenue receipt is generated through a source of income. Source of income can be a tangible asset or an intangible asset. Examples are Fruits, Crops, Cloths, Salary, Rent, Profit, Interest & Royalty are treated as revenue receipt.

Capital

receipt

(a)

Receipts for which there does not exist a source of income is a capital receipt. E.g. Gifts, capital contribution etc. y

(b)

Also receipts arising by sale of source of income can be said to be capital receipt. E.g. sale of trees along with its roots or sale of property.

TAX TREATMENT

Revenue Receipt	Capital Receipt
Every revenue receipt is taxable, unless otherwise expressly exempted under the Act.	Every capital receipt is not taxable from tax unless otherwise expressly taxable.
E.g. 1 Agricultural income is exempt from tax under section 10(1) even though revenue receipt.	E.g. 1 : Profit arising on transfer of a capital asset is taxable u/s 45 under the head capital gain even though capitalreceipt.
E.g. 2 Dividend from domestic company is exempt from tax under section 10(34) even though revenue receipt. However dividend from foreign company is taxable.	E.g. 2 : For accident compensation, there does not exists any source of income, therefore such receipt is treated as capital receipt. Further such receipt is not from transfer of a capital asset, therefore not taxable.
E.g. 3 : Professional gifts are treated as revenue receipt therefore taxable either under head Salary or under head Business.	E.g. 3 : Personal gifts from relatives not taxable since capital receipt. However personal gifts from non-relatives is taxable u/s 56 under the head Other Sources.

Types of expenditure

Revenue Expenditure	It is expenditure incurred for maintenance of source of income.
Capital expenditure	It is expenditure incurred for purchase of source of income.

Classification of Income
1. Revenue receipt – Revenue expenditure = Income. This income is divided into 4 heads. They are Income
from Salary, Income from House Property, Profits and Gains from Business or Profession and Income from
Other Sources.

2. Capital receipt – Capital expenditure = Income. This income is known as Capital Gain.

Now you know that there are five heads of income. It means you are required to compute five sets of profit and
loss account unlike in accountancy where you prepare only one profit and loss account.

The concept of classification of income into each of the heads is very important. Since if any income is charged
into a particular head, that income cannot further be charged under any other head. Moreover, specific deductions are permissible under a particular head of income. Wrong classification shall lead to wrong computation of income.

All the 5 heads are added to get the Gross Total Income. From this Gross Total Income deductions u/s 80C to
80U are allowed and we get Total Income. On this total income tax is levied at the rate mentioned in the Income
Tax Act and Annual Finance Act. Let us see this mathematically.

COMPUTATION OF TOTAL INCOME

Income from Salaries [Sections 15 to 17]		xxx
Income from House Property [Sections 22 to 27]		xxx
Profits and Gains from Business or Profession [Sections 28 to 44D]		xxx
Capital Gain [Sections 45 to 55A]		xxx
Income from Other Sources [Sections 56 to 56]		xxx
Two adjustments in respective heads.
•	Clubbing of income [Sections 60 to 65] (income of the minor child added to parentsincome)	xxx
_•	Set off and carry forward of losses [Sections 70 to 80] (loss of one head set off with another head)	(xxx)
Gross Total Income [Section 14]		xxx
Less: Deduction u/s 80C to 80U (payment of life insurance premium, provident fund, health insurance, donations etc)		(xxx)
Total Income. [Section 2(45)]		xxx

Note 1: Exempted income do not form part oftotal income. Sections 10 to 13A. Section 11 & 12 exempts incomes of charitable trusts, hospitals, universities, public trust. Section 13A exempts income of political parties.

Concept of year

Financial Year	April to March
Previous Year	Previous Year is the financial year in which income is earned.
Assessment Year	Assessment Year is the financial year in which tax is paid

DUE DATE OF FILING OF RETURN

Company	30th September of the relevant AY.
Others	31st July of the relevant AY.

CONSEQUENCES OF NOT COMPLYING WITH THE PROVISIONS OF INCOME TAX

a. Interest.
b. Penalty.
c. Prosecution.

SECTION 2(31). PERSON

There are 7 categories of persons. Individual, HUF, Company, Firm, AOP, Local authority, Artificial juridical person. (Detail discussion chapter definition)

SECTION 2(7). ASSESSEE

Assessee is a person who pays tax. (Detail discussion chapter definition)

P1
1. Explain concept of income in brief?
2. When you should file your return of income for the AY 2017-18?
3. In which year income is computed and taxable?
4 What is the general rule of taxation?
5. What will be the period of the previous year for the AY 2017-18?
6. Can a calendar year be treated as previous year?

Solutions
1. Income is either revenue in nature or capital in nature. Income may be taxable or exempted depending upon
the specific provisions of the Income Tax Act.
2. It is either on or before 31-7-2017 or on or before 30-9-2017 depending upon case to case basis.
3. Income is computed for the financial year and tax is paid in year immediately succeeding financial year
known as assessment year.
4. Income of the previous year is assessed or taxed in the assessment year.
5. 12 months.
6. No, previous year shall always be financial year and not calendar year.

EXTRA TOPICS

Constitution of india
As per Article 265 of Constitution of India ‘No tax shall be levied or collected except by the authority of Law’

The Central Govt. can levy tax if it is empowered in Constitution of India. Schedule VII of the Constitution of
India has 3 list. List 1 called Union List. List II called State List and List III called concurrent list.

Now let us see Schedule VII of the Constitution of India.

List I : Union List		List II : State List
(Only CG can make laws on following subjects)		(Only SG can make laws on following subjects)
Entry No	Subject	Entry No	Subject
82	Tax on Income other than Agricultural Income	46	Tax on Agricultural Income
83	Custom Duty	x	x
84	Excise Duty on manufacture of any goods except alcohol*	51	Excise duty on manufacture of alcohol.
92A	Taxes on inter state sales.	x	x
x	x	54	Tax on sale inside the State.
92C*	Tax on Service (* introduced in 2004 but ineffective)	x	x
x	x	49	Land & Building
x	x	52	Tax on entry of goods inside the State.
x	x	60	Taxes on professions, trades, callings and employments.
97	Residuary	x	x

INCOME TAX ACT, 1921
INCOME TAX ACT, 1961
INCOME TAX ACT, ?

Act means LAW. Law means rules and regulations. All rules and regulations are arranged in paragraph. These
paragraphs are numbered in sections.
Sections | Sub sections | Clause | Sub Clause
Provided clause [Exceptions]
Explanation clause [Clarifications]

Amendments are of 3 types

Deletions of sections

Insertions of sections

Changes in sections

Amendment is carried out through.

Budget

Ordinance

Notifications

Note: Amendment can have prospective or retrospective effect.

Budget

Every year the Finance Minister presents the budget in Parliament known as Finance Bill. The Finance Bill when enacted becomes Finance Act which brings amendment in Direct Tax and Indirect Tax. On 28-2-2008, Mr. P. Chidambram presented the Finance Bill 2008 which contains provisions for the financial year 2008-09 relevant to assessment year 2009-10.
The annual Finance Act comes into effect once it is passed by both Lok Sabha and Rajya Sabha and President accords his assent.

Ordinance

It is amendment made between two budgets. Amendment is directly signed by President. This amendment is to be passed by parliament within 6 month of signing.

Notifications

Central Govt. through official gazette brings out certain changes in law. Central Govt has conferred power on itself under Income Tax Act under various sections.

Issuance of

Circulars

The CBDT u/s 119 of the Income Tax Act issues from time to time Circulars, clarifications, instructions for the proper administration of this Act. These circulars are binding on Income tax department and not on assessee.

Administrative set up
1. The Ministry of Finance.
2. Department of revenue
• Central Board of Direct Taxes. [CBDT]
• Central Board of Excise and Customs. [CBEC]

Hierarchy

1	Chairman
2	Chief Commissioner of Income Tax.
3	Commissioner of Income Tax.	Commissioner of Income Tax (Appeals)
4	Additional Commissioner of Income Tax.	Rank 1 Assessing Officer
5	Joint Commissioner of Income Tax	Rank 1 Assessing Officer
6	Deputy Commissioner of Income Tax.	Rank 2 Assessing Officer
7	Assistant Commissioner of Income Tax.	Rank 2 Assessing Officer
8	Income Tax Officer.	Rank 3 Assessing Officer
9	Inspector of Income Tax.

Judicial Decisions

1.	Commissioner of Income Tax (Appeals).	The law declared by CIT (A) shall be binding within its jurisdiction.
2.	Income Tax Appellate Tribunal.	The law declared by ITAT shall be binding within its jurisdiction.
3.	High Court.	The law declared by High Court shall be binding within the territory of that State.
4.	Supreme Court.	The law declared by Supreme Court shall be binding on all High Courts and within the territory of India. It is law of land until amended by Parliament.

Note: Assessee can also go for revision of order by assessing officer to CIT.
What are the stages of imposition of tax (Levy, collection and assessment)
1. Identification of income on which tax is to be levied. [Revenue receipt and capital receipt]
2. Prescribing methods of computation of income. [5 heads]
3. Indication of a person on whom levy is imposed. i.e. to whom income belongs. [Definition of person]
4. Identifying the person who is obliged to pay tax. [Definition of an assessee]
5. The rate of tax [Slab rate or any prescribed rates]
6. Filing of return of income.
7. Assessment of income by the Assessing Officer.
8. Method of recovery of tax if he person doesn’t pay tax voluntarily. [interest, penalty and prosecution]
9. If unsatisfied with the income tax department then provisions of appeals and revisions shall apply.

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FAQs on Concept of Income - Taxation - Income Tax for assessment (Inter Level)

1. What is income taxation?

Ans. Income taxation refers to the process of levying taxes on the income earned by individuals, businesses, or other entities. It is a government's way of generating revenue to fund public services and infrastructure.

2. How is income tax calculated?

Ans. Income tax is calculated based on the taxable income of an individual or entity. Taxable income is determined by subtracting allowable deductions and exemptions from the total income earned. The tax rates applicable to different income brackets are then applied to calculate the final tax liability.

3. What are the different types of income taxes?

Ans. There are various types of income taxes, including: - Personal income tax: Imposed on the income earned by individuals. - Corporate income tax: Imposed on the profits earned by businesses. - Capital gains tax: Levied on the profits made from the sale of certain assets, such as stocks or real estate. - Dividend tax: Tax on the dividends received by shareholders from corporations. - Self-employment tax: Paid by individuals who work for themselves, including freelancers and independent contractors.

4. Are there any exemptions or deductions available in income taxation?

Ans. Yes, most tax systems provide exemptions and deductions to lower the taxable income. Common exemptions include those for dependents, while deductions can be claimed for expenses such as mortgage interest, medical expenses, and charitable contributions. These exemptions and deductions vary by jurisdiction and may have certain criteria or limits.

5. How can I file my income tax return?

Ans. There are different methods to file income tax returns, depending on the country and tax regulations. Common methods include: - Online filing: Many countries offer online platforms or software to file income tax returns electronically. These platforms often provide step-by-step guidance and calculations. - Paper filing: Some individuals or entities may choose to file their tax returns manually using paper forms. These forms are typically available from tax authorities or can be downloaded from their websites. - Hiring a tax professional: Many individuals prefer to hire tax professionals, such as accountants or tax consultants, to handle their income tax filing. These professionals have expertise and can ensure accurate and compliant tax filings.

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