Concept of Income - Taxation Notes | Study Income Tax for assessment year 2017-18 (Inter Level) - Taxation

Taxation: Concept of Income - Taxation Notes | Study Income Tax for assessment year 2017-18 (Inter Level) - Taxation

The document Concept of Income - Taxation Notes | Study Income Tax for assessment year 2017-18 (Inter Level) - Taxation is a part of the Taxation Course Income Tax for assessment year 2017-18 (Inter Level).
All you need of Taxation at this link: Taxation

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

6

Deputy Commissioner of Income Tax.

Rank 2 Assessing Officer

7

Assistant Commissioner of Income Tax.

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.
The document Concept of Income - Taxation Notes | Study Income Tax for assessment year 2017-18 (Inter Level) - Taxation is a part of the Taxation Course Income Tax for assessment year 2017-18 (Inter Level).
All you need of Taxation at this link: Taxation
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