Income Tax

Accounting
Introduction to
INCOME TAX &
RESIDENTIAL PROPERTY

Name: Tanisha Behera

Roll No.:2205044. Uni No.:
22002503037
Scheme of Taxation
Every person, whose total income of the previous year exceeds the maximum amount which is not chargeable to
income-tax, is an assessee and chargeable to income-tax in the assessment year at the rate or rates prescribed in the
Finance Act/Income-tax Act for that relevant assessment year. However, his total income shall be determined on the
basis of his residential status in India.
In other words, income-tax is levied in India in the following manner:
1. Income earned by every person is chargeable to income-tax provided it exceeds the maximum amount which is not
chargeable to tax, i.e., it exceeds the maximum exemption limit.
2. It is charged on the total income of the previous year but is taxable in the following assessment year at the rates
applicable to such assessment year. However, there are certain exceptions to this rule.
3. Income-tax is charged at two rates, viz. normal rates and special rates.
4. Normal tax rates which can be in the form of slab rate or flat rate are fixed by the annual Finance Act but special
rates are given in the Income-tax Act itself.
5. Tax is charged on the total income computed in accordance with the provisions the Act.
6. Total income of a person is determined on the basis of his residential status in India.
7. Although the income of the previous year is chargeable to tax in the assessment year, but the assessee has to pay
income-tax in the same previous year in which income is earned. It is paid in the form of advance tax and deduction
of tax at source (TDS). Such tax paid in the previous year (also known as prepaid taxes) shall be deducted from the
income-tax due on total income in the assessment year.
 Important Concept (Person)

An association of persons or a body of individuals or a local authority or an artificial in dial person shall be deemed 1o be a person, whether of
not, such person of body or authority or juridica petion, as formed or established of incorporated with the object of deriving income, profits or
gains. [Explanation to section 2(31)]
(a) An individual means a natural person, i.e., a human being. It includes a male, female, minor child. However, the in individual mer is ow
generally included in the income of a parent. Sometimes the minor is himself liable to the in one of earned by him. Since minor is not competent
to contract, his income shall be taxable through his legal
(b)
A Hindu undivided family has not been defined under the tax laws. However, as per the Hindu law, it means a family which consists of all persons
lineally descended from a common ancestor including their wives and daughters.
(e) A firm shall have the meaning assigned to it in the Indian Partnership Act, 1932 and shall include a limited liability partnership as defined in
the Limited Liability Partnership Act, 2008.
(d)
Association of persons: The Income-tax Act does not define an association of persons (AOP). In the absence of any definition, the words must be
construed in their plain ordinary meaning.
Association of persons means two or more persons who join for a common purpose with a view to earn an income.
It need not be on the basis of a contract. Therefore, if two or more persons join hands to carry on a business but do not constitute a partnership,
they may be assessed as an Association of Persons (AOP).
An Association of Persons does not mean any and every combination of persons. It is only when they associate themselves in an income-
producing activity that they become an association of persons. They must combine to engage in such an activity; the engagement must be
pursuant to the combined will of the persons constituting the association; there must be a meeting of the minds, so to speak. In a nutshell, there
must be a common design to produce income.
Body of individuals (BOL) means a conglomeration of individuals who carry on some activity with the objective of earning some income. It would
consist only of individuals. Entities like companies or firms cannot be members of a body of individuals.
Normally, income-tax shall not be payable by an assessee in respect of the receipt of share of income by him from BOI/AOP if the tax has already
been paid by such BOI/AOP.
() A local authority: The expression local authority means:
(i) Panchayat; or (ii) Municipality; or
ii) Municipal Committee and District Board, legally entitled to, or entrusted by the Government with, the control
or management of a Municipal or local funds; or (iv) Cantonment Board.
(8) Artificial juridical persons are entities which are not natural persons but are separate entities in the eyes of law.
Though they may not be sued directly in a court of law but they can be sued through persons managing them.
Cod, idols and deities are artificial persons. Though they may not be sued directly they can be legally sued through the priests or the managing
committee of the place of worship, etc. They are persons and their income, like offenngs and donations, are taxable. However, under the Income-
tax Act, they have been provided exemption from paymen. of tax under separate provisions of the Act, if certain conditions mentioned therein
are satisfied.
Swim arly, all other artificial persons, with a juristic personality, will also fall under this category, if they do not fal within the si the preceding
categories of persons,
Cases where income of previous year is assessed in
same year
1.SHIPPING BUSINESS OF NON-RESIDENTS (SEC 2.ASSESSMENT OFAssessing
1.When it appears to the PERSONS OfficerLEAVING INDIAmay
that any individual (SEC
leave India during the current assessment year or shortly after its
172) 174)
expiry, and such individual has no present.
A non-resident who is carrying on a shipping business and earns income from
intention of returning to India, the total income of such individual, from
carrying passengers/livestock/goods from a port in India, will be charged income-
the expiry of previous year for that assessment year (i.e., from 1st April
tax before the ship is allowed to leave the Indian port. Therefore, before the ship
leaves the Indian port, the master of the ship is under an obligation to furnish a of the assessment year) up to the probable date of his departure from
return of the full amount earned on account of fare and freight (including the India shall be chargeable to tax in the same assessment year.
amount paid or payable by way of demurrage charge or handling charge or any ExampleR wishes to migrate to USA permanently and plans to leave
other amount of similar nature) and pay the tax accordingly. In this case 7.5% of India on 15.11.2023. He submitted his return for assessment year 2023-
the amount of fare/freight/charge, etc., shall be deemed to be income of such 24 on 31.7.2023 the assessment of which is still pending.
assessee on which the income-tax will be charged. Therefore, in this case the tax In this case the Assessing Officer will make two assessments: (a)
is chargeable on the income in the same year in which it is earned. regular assessment for previous year income of 2022-23 at the rates
Where the Assessing Officer is satisfied that it is not possible for the master of
applicable for assessment year 2023-24.
ship to furnish the retum before the departure of the ship from the port and the
(b)
master of the ship has made satisfactory arrangement for the filing of the return
and payment of the tax by any other person on his behalf, he (the Assessing assessment of income of the period 1.4.2023 to 15.11.2023 (either
Officer) may, if the retum is filed within 30 days of the departure of the ship, deem actual or estimated basis) and tax should be levied on such income in
the filing of the return by the person so authorised by the master as sufficient the assessment year 2023-24 itself but at the rates of advance tax for
compliance for the purpose of this section. financial year
2023-24 (A.Y. 2024-25) given in part III of First Schedule of Finance Act,
2023.
Cases where income of previous year is assessed in
same year
ASSESMENT OF ASSOCIATION OF PERSON ASSESMENT OF PERSONS LIKELY TO TRANSFER PROPERTY
FORMED FOR A PARTICULAR EVENT/PURPOSE TO AVOID TAX(SEC 175)
(SEC174A)
Where it appears to the Assessing Officer that any association of 1. Assessment of persons likely to transfer property to avoid tax
persons or a body of individuals or an artificial juridical person [Section 175]: If it appears to the Assessing Officer during any
formed or established or incorporated for a particular event or current assessment year, that any person is likely to charge, sell,
purpose is likely to be dissolved in the assessment year in which transfer, dispose of or otherwise part with any of his assets with a
such association of persons or body of individuals or artificial view to avoiding any payment of his tax liability, then the total
juridical person was formed or established or incorporated or income of such person for the period from the expiry of the previous
immediately after such assessment year, the total income of such year for that assessment year (i.e., from 1st April of that assessment
person or body or juridical person, for the period from the expiry year) till the date when the assessing officer commences
of the previous year for that assessment year up to the date of its proceedings, shall be chargeable to tax in the same assessment year.
dissolution, shall be chargeable to tax in that assessment year. However, in this case also the rate of tax applicable shall be the rate
E.g. if AOP which is formed in the previous year 2023-24 is going given in Part III of Schedule I which are applicable for advance tax
to be dissolved on 16.6.2024 then the income of the period also.
1.4.2024 to 16.6.2024 shall be charged to income-tax in the
assessment year 2024-25 itself although its assessment year
should have been assessment year 2025-26.
 Maximum amount which is not chargeable to income
tax
An individual who has opted to be taxed under the old regime.
An individual, irrespective of any age, who does not exercise any option and hence by default he is under the new regime, i.e., section 115BAC(1A).
₹5,00,000
₹3,00,000
1. In case of every individual (male or female), being resident in India, who is of the age of 80 years or more at any time during the previous year
2. In case of individual (male or female) being resident in India who is of the age of 60 years and above but less than 80 years at any
₹3,00,000
₹5,00,000
(c) Any other individual, i.e., resident in India who is less than 60 years of age or an individual who is a non-resident irrespective of whether his age is less than or more than 60
years
Hindu Undivided Family who has opted to be taxed under the old regime.
Introduction
22,50,000
5
そ 3,00,000
AOP/BOI other than co-operative society (Where no member has income exceeding maximum exemption limit) who has opted to be taxed under the old regime
Artificial juridical person who has opted to be taxed under the old regime
(2) Hindu Undivided Family (HUF)
82,50,000
Hindu Undivided Family who does not exercise any option and hence by default he is under the new regime, i.e., section 115BAC(1A).
(3) AOP/BOI
¥2,50,000
AOP/BOI other than co-operative society (Where
no
member
has
income
exceeding maximum exemption limit) who does not exercise any option and hence by default it is under the new regime, i.e., section 115BAC(1A).
(4) Artificial Juridical Person
22,50,000
Artificial juridical person who does not exercise any option and hence by default it is under the new regime, i.e., section 115BAC(IA).
 Charge of Income
Tax
No tax can be levied or collected in India except under the authority of law. Section 4 of the Income-tax Act, gives such The base for levy of tax in
any assessment year is normally the income of the previous year. However, in some cases,
income-tax may be charged in respect of the income of a period other than the previous year.
Although income-tax is charged on the income of the previous year in the relevant assessment year, but Income-tax shall provisions of the Act.
be deducted at the source, or paid in advance, in the same previous year wherever it is so deductible or payable under any
1.3-d Gross Total Income
As per section 14, all income shall, for purposes of Income-tax and computation of total income, be classified under the
following heads of income:
(i) Salaries,
(ii) Income from House Property,
(iii) Profits and Gains of Business or Profession, (iv) Capital Gains,
(v) Income from Other Sources.
Aggregate of incomes computed under the above 5 heads, after applying clubbing provisions and making adjustments of set off and carry forward of
losses, is known as Gross Total Income (GTI). [Section 80(5)]
1.3-e Total Income
The total income of an assessee is computed by deducting from the gross total income, all deductions permissible under
Chapter VIA of the Income-tax Act, i.e., deductions under sections 80C to 80U.
1.3-f Rounding off of Total Income [Section 288A]
The total income, as computed above, shall be rounded off to the nearest multiple of ten rupees and for this purpose any part of a rupee consisting
of paise shall be ignored. Thereafter if such amount is not a multiple of ten, then, if the last figure is 5 or more, the amount shall be increased to the
next higher multiple of 10 and if the last figure of Total Income is less than 5, the amount shall be reduced to the next lower multiple of 10. For
example, if the total income is 28,79,467, it shall be rounded off to 28,79,470 and if it is 78,79,464.90, it shall be rounded off to 78,79,460.
1.3-g How to compute tax liability on Total Income
On the Total Income, tax is calculated according to the normal rates prescribed under the relevant Finance Act and special rates prescribed in the
Income Tax Act,
The amount so computed, shall be increased by a surcharge, if applicable and health and education cess calculated @ 4% (tax + surcharge if any).
The amount so rrived at is the tax liability of the person for that year,
1.3-h Rounding off of tax, etc. [Sectio. 288BJ
The amount of tax (including tax deductible at source or payable in advance), interest, penalty, fine or any other sum payable, and the amount of
refund due, under the provisions of the Income-tax Act, shall be rounded off to the nearest multiple of ten rupees and, for this purpose, where such
amount contains a part of ten rupees then, if such part is five rupees or more, it shall be increased to ten rupees and if such part is less than five
rupees it shall be ignored
 Scope of Total Income/Incidence of tax [Section 5]
Total income of an assessee cannot be computed unless we know his resilental stalus in India during the previous year.
Acconding to the resufential status, the assessee con either be:
(* Resident in India; or (in) Non-resident in India.
However, individual und HUF cannot be simply called resident in focia. Il inchvidual is a resident in Jedi he will be either:
1. Resident and Ordinarily resident in India; or
2. Resident but not Ordinarily resident in India.
Note:— As per section 6(1), an individual can be deemed to be resident in India if centain conditions are satished.
However, such individual shall be resident but not ordinarily resident in India.
Other categories of persons shall either be resident in India or non-resident in India. There is no further classification into ordinarily
resident or not ordinarily resident in their case.
2.2 Basic rules for determining residential status of an assessee
The following basic rules must be kept in mind while determining the residential status:
• Residential status is determined. for each category of persons separately e.g. there nre separate set of rules for determining the
residential status of an individual and separate rules for companies, etc.
• Residential status is always determined for the previous year because we have to detennine the total income of the previous

SCOPE OF TOTAL year only.

• Residential status of a person is to be determined for every previous year because it may change from year to year.

INCOME/INCIDEN • For example A, who is resident of India in the previous year 2023-24, may become a non-resident in previous year 2024-25.
• If a person is resident in India in a previous year relevant to an assessment year in respect of any source of income, he shall be
demed to be resident in India in the previous year relevant to the assessment year in respect of each of his other source of

CE OF TAX (SEC- income. [Section 6(5)] |

• A person may be a resident of nore than one country for any previous year. If Y is a resident in India for previou year 2023-24, it

5) does not mean that he cannot be a resident of any other country for that previous year.
• Citizenship of a country and residential status of that country are separate concepts. A person may be an India national/citizen,
but may not be a resident in India. On the other hand, a person may be a foreign national/citize but may be a resident in India.
• It is the duty of the assessce to place all material facts before the assessing officer to chable him to determine l correct
residential status.
2.3 Rules for determining the residential status of an individual [Sections 6(1) & 6(1A)]
An individual may either be a:
1. Resident in India; or
2. Deemed to be resident in India [Section 6(IA)]; or
3. Non-resident in India.
An individual cannot simply be called a resident or deemed to be resident in Indin:
Ifhe is a resident in India, we have to further detenmine whether he is:
(a) resident and ordinarily resident in India; or (b)
resident but "not ordinarily resident in India".
Whereas, if an individual is deemed to be resident in India as per section 6(1), he shall be "not ordinarily resid in India".
 Room for
Improvement
As the school year progresses, we
will re-evaluate our guidelines
and goals. In this way, we can
assess what is working and what
needs to be changed.
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