Introduction to Tax

Introduction to Tax

• 1.
  Income Tax -I Unit – I INTRODUCTION
• 2.
  Tax •The origin ofthe word "Tax" is from "Taxation" which means an estimate. •Tax is a mandatory liability for every citizen of the country.
• 3.
  BRIEF HISTORY OFINCOME TAX . According to Manu Smriti, the king should arrange the collection of taxes in such a manner that the tax payer did not feel the pinch of paying taxes.  He laid down that traders and artisans should pay 1/5th of their profits in silver and gold, while the agriculturists were to pay 1/6th, 1/8th and 1/10th of their produce depending upon their circumstances. Manu Smriti Arthasastra mentioned that each tax was specific and there was no scope for arbitrariness. Tax collectors determined the schedule of each payment, and its time, manner and quantity being all pre-determined.  The land revenue was fixed at 1/6 share of the produce and import and export duties were determined on ad-valorem basis.  The import duties on foreign goods were roughly 20% of their value. Similarly, tolls, road cess, ferry charges and other levies were all fixed. Arthasastra In India, this tax was introduced for the first time in 1860, by Sir James Wilson in order to meet the losses sustained by the Government on account of the Military Mutiny of 1857.  In 1918, a new income tax was passed and again it was replaced by another new act which was passed in 1922. This Act remained in force up to the assessment year 1961-62 with numerous amendments Sir James Wilson
• 4.
  Introduced By “SirJames Wilson” in the year 1860 To meet the heavy losses on account of military mutiny (1857) In the year 1886 first income tax act passed The organizational history of the Income-tax Department starts in the year 1922 Appointment of law commission in 1956 The law commission submitted its report on 1958 Bill was prepared and introduced in the parliament in April 1961 History of Income Tax Detailed History: https://www.incometaxindia.gov.in/Pages/about-us/history-of-direct-taxation.aspx Video URL: https://www.youtube.com/watch?v=uOUEHPzpH8E
• 5.
  Income Tax act1961 • 298 sections and XIV schedules Income tax rule 1962 • CBDT Finance Act • Finance Minister Case Laws • Judgment given by supreme court Circulars and notifications • Issue orders and instructions Legal Framework
• 6.
  Income tax, customduties, central excise duty. Tax on agricultural income, professional tax, value- added tax, state excise duty, stamp duty. Property tax, water tax, other taxes on drainage and small services. Tax Collection Bodies
• 7.
   A taxis a compulsory charge or payment imposed by government on individuals or corporations.  The most important source of revenue of the government is taxes.  The act of levying taxes is called taxation.  The taxes may be imposed on the income and wealth of persons or corporations and the rate of taxes may vary. Taxation
• 8.
  Objectives of Taxes Raising Revenue  Regulation of Consumption and Production  Encouraging Domestic Industries  Stimulating Investment  Reducing Income Inequalities  Promoting Economic Growth  Development of Backward Regions  Ensuring Price Stability
• 9.
  Direct Tax • Directtax is a type of tax where the incidence and impact of taxation fall on the same person. Indirect Tax • Indirect Tax is a type of tax where the incidence will be on one person and impact of taxation fall on the some other person Types of tax
• 10.
  Types of tax •Income Tax • Securities transaction Tax • Corporate tax • Capital gains • Gift Tax – 1958 - 1998 • Corporation Tax • Estate Duty – 1953 to 1985 • Wealth Tax – 1957 to 2015 • Goods & Service Tax • Custom Duty • VAT • Service Tax • Excise Duty • Property Tax • Professional Tax • Registration fees, stamp duty, transfer tax • Road tax and toll tax • Entertainment tax Other Taxes
• 11.
   An incometax is a tax that governments impose on income generated by businesses and individuals within their jurisdiction.  By law, taxpayers must file an income tax return annually to determine their tax obligations.  Income taxes are a source of revenue for governments.  They are used to fund public services, pay government obligations, and provide goods for citizens. Income Tax
• 12.
   By canonsof taxation we simply mean the characteristics or qualities which a good tax system should possess.  A good tax system is therefore based on some principles. These principles which a good tax system should follow are called canons of taxation. Canons of Taxation
• 13.
  . • convenience • Canonof Convenience Taxes should be levied and collected in such a manner that it provides the greatest convenience not only to the taxpayer but also to the government • Canon of Economy the cost of collecting a tax should be as minimum as possible. Any tax that involves high administrative cost and unusual delay in assessment and high collection of taxes should be avoided altogether. • Canon of equality states that the burden of taxation must be distributed equally or equitably among the taxpayers. • Canon of Certainty the tax which an individual has to pay should be certain and not arbitrary• certainty • equity • economy • Adam Smith first devised the principles or canons of taxation in 1776. canons of taxation are related to the administrative part of a tax. Canons of Taxation
• 14.
   Canon of Produc tivity • Canonstates that only those taxes should be imposed that do not hamper productive effort of the community. A tax is said to be a productive one only when it acts as an incentive to production • Canon of Productivity • Every tax must be simple and intelligible to the people so that the taxpayer is able to calculate it without taking the help of tax consultants • Canon of Simplicity • This canon implies that a tax should be flexible or elastic in yield. • It should be levied in such a way that the rate of taxes can be changed according to exigencies of the situation • Canon of Elasticity • Taxation must be dynamic. This means that a country’s tax structure ought to be dynamic or diverse in nature rather than having a single or two taxes. • Diversification in a tax structure will demand involvement of the majority of the sectors of the population. • Canon of Diversity  Canon of Simplic ity  Canon of Elastici ty  Canon of Diversi ty Other canons of taxation:
• 15.
  Assessment Year Meansthe Period of 12 Months Commencing on the First day of April every Year and ending on 31st March of the next Year during which the assesse previous year income is assessed and taxed. ( The Current Assessment Year is 2020-2021) Income earned in a year is assessed and taxed in the Assessment year the year in which income is earned in known as previous year i.e. Financial Year Immediately Preceding the relevant Assessment Year is Known as Pervious Year. It Is period of 12 Months or Less. Assesse is any individual who is liable to pay taxes to the government against any kind of income earned or any losses incurred by him for a particular assessment year. The term “person” includes an individual, A Hindu undivided family, a company, a firm, an association of persons or body of individuals, whether incorporated or not, a local authority, every artificial judicial person not falling within any of the preceding categories. Assessm ent Year U/S 2 (9) Previous Year U/S - 3 Persons Sec- 2(31) Important Terms Assesse Sec-2(7)
• 16.
  Income U/S –2(24) Sec. 2(24) of the Income Tax Act gives a statutory definition of income. It is an inclusive & enumerative definition than an exclusive & precise one. Accordingly, income includes the following: • Profits & gains. • Dividends. • Voluntary contributions. • The value of any perquisite or profits in lieu of salary. • Any allowances or benefit granted. • Profits & gains of business or profession U/S 28. • The value of any benefit or perquisite arising from business or the exercise of a profession. • Any capital gains chargeable U/S 45. • Insurance profit computed U/S 44. • Any winning from lotteries, cross-word puzzles, races including horse races, card games & other games of any sort or betting of any form. • Any sum received by the assessee from his employer as contribution to any provident fund or superannuation fund or Employees State Insurance Fund, or any other fund for the welfare of such employees. • Any sum received under a Keyman Insurance Policy including bonus on such policy, etc. • Any sum of money or value of property received without consideration or for inadequate consideration from an individual or H.U.F from a person other than a relative. • Value of any benefit or perquisite obtained from a company by a director or a person who has substantial interest in the company or their relative.
• 17.
  Gross Total Incomeis the aggregate of all the income earned by an assesse during a specified period. Income from Salaries Income from House Property Profits and Gains of Business and Profession Capital Gains Income from Other Sources According to Section 14 of the Income Tax Act 1961, 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). Gross Total Income (GTI)
• 18.
  G. T. I.= Salary Income + House Property Income + Business or Profession Income + Capital Gains + Other Sources Income + Clubbing of Income - Set-off of Losses Gross Total Income (GTI)
• 19.
  Total Income isincome of assesse from all sources on which he has to pay income Tax. In other words it is income under all the five head after making deductions Under section 80C to 80U Total Income (TI) = GTI - Deductions U/S 80C to 80U Total Income or Taxable Income
• 20.
  Agriculture Income According toArticle 270 on indian constitution central government cannot levy any tax on agriculture income. It is exempt from tax under section 10(1) U/S 2(1A) Agriculture income means  Any rent or revenue received from land which is used for agriculture purpose and situated in india.  Any income derived from such land by agriculture operations including processing of agriculture produce or sale of such produce  income attributable to a farm house subject to the condition that the building is situated on or in the immediate vicinity of the land
• 21.
  Income from saleof replanted trees Rent received from agriculture Land Income received from sale of seeds Income from growing flowers and creepers Share of profit of a partner from a firm engaged in agriculture operations Interest on capital received by a partner from a firm engaged in agriculture operations. Income from poultry farming. Income from bee hiving. Dividend received from a company engaged in agricultural purpose Income from sale of spontaneously grown trees. Income from dairy farming. Purchase of standing crop. Royalty income from mines. Income from butter and cheese making. Remuneration received as an employee of an agriculture farm. Agriculture Income Non Agriculture Income