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Semester 5: B.Com Corporate Secretaryship
Introduction to Income Tax Act 1961
Introduction to Income Tax Act 1961
History and Background
The Income Tax Act 1961 was enacted to consolidate and amend the laws relating to income tax in India. It replaced the Income Tax Act of 1922 and was brought into force from April 1, 1962.
Objective of the Act
The primary objective of the Income Tax Act 1961 is to provide a legal framework for the imposition, collection, and administration of income tax in India. It aims to ensure equitable distribution of wealth through taxation.
Structure of the Act
The Act is divided into various chapters and sections, detailing the scope of income, tax rates, exemptions, deductions, and procedures for assessment and appeals.
Key Terminologies
Important terms under the Act include "income," "assessees," "previous year," "assessment year," and "gross total income," which form the basis of tax computation.
Categories of Income
The Income Tax Act classifies income into five heads: Salaries, Income from House Property, Profits and Gains of Business or Profession, Capital Gains, and Income from Other Sources.
Assessment Procedure
The assessment procedure involves the filing of income tax returns, scrutiny by tax authorities, assessment orders, and the right to appeal against those orders.
Tax Computation and Rates
Income tax is computed based on the applicable tax slabs which vary for individuals and entities. The rates are subject to change in financial budgets.
Recent Amendments and Reforms
The Income Tax Act is regularly updated to incorporate changes in economic policies and to enhance compliance. Recent amendments aim to simplify the tax process and broaden the tax base.
Income from Salaries
Income from Salaries
Definition of Income from Salaries
Income from salaries refers to the earnings received by an individual as a result of their employment. It typically includes the basic salary, allowances, bonuses, and other benefits provided by the employer.
Components of Salary Income
Salary income consists of various components such as: 1. Basic Salary: The fixed core amount paid to an employee before allowances and deductions. 2. Allowances: Financial benefits provided for specific purposes, like house rent, travel, etc. 3. Bonuses: Additional payments made to employees based on performance or company profits. 4. Perquisites: Non-cash benefits that enhance the value of compensation, such as a company car or housing.
Taxability of Salary Income
Salary income is subject to taxation under the Income Tax Act. The amount of tax payable depends on the individual's tax slab, which is determined by their total income.
Deductions under Salary Income
Certain deductions are permissible under the Income Tax Act, such as: 1. Standard Deduction: A fixed deduction available to all salaried taxpayers. 2. Professional Tax: Any professional tax paid can also be deducted from salary income.
Importance of Form 16
Form 16 is a crucial document issued by employers. It certifies the amount of salary paid and the taxes deducted at source. Employees use it to file their income tax returns.
Filing ITR for Salary Income
Individuals earning a salary must file their Income Tax Return (ITR) annually. They need to report their salary income, claim deductions, and calculate tax payable.
Income from House Property
Income from House Property
Definition and Scope
Income from house property includes rental income derived from a building or land appurtenant to a building, which is owned by the taxpayer. This topic primarily covers income earned through residential or commercial property.
Determination of Gross Annual Value
The gross annual value is the maximum amount for which the property might reasonably be expected to be let out. It can be calculated considering the actual rent received or the expected municipal value, whichever is higher.
Deduction under Section 24
Deductions available under Section 24 of the Income Tax Act include a standard deduction of 30 percent of the gross annual value and interest on borrowed capital for the acquisition, construction, or renovation of the property.
Taxability of Income from House Property
Income from house property is taxed under the head 'Income from House Property' and is subject to the provisions of the Income Tax Act, which provide the framework for computation and taxation.
Exceptions and Special Cases
Certain exceptions apply, such as properties that are not let out, or cases where the property is self-occupied. It is crucial to understand the implications of these exceptions on taxable income.
Filing of Income Tax Return for House Property Income
Taxpayers must report income from house property in their income tax returns. Accurate reporting ensures compliance and helps avoid penalties.
Profits and Gains of Business and Profession
Profits and Gains of Business and Profession
Definition of Business and Profession
Business refers to an activity carried out with the intention of earning profits by providing goods or services. Profession, on the other hand, involves specialized knowledge and training, often leading to a service-rendering activity that may not directly aim for profits but focuses on social good.
Classification of Profits
Profits can be classified into various categories such as operational profits, extraordinary profits, and capital gains. Operational profits are derived from regular business activities, while extraordinary profits arise from non-recurring transactions. Capital gains refer to profits earned from the sale of assets.
Income Computation for Business
Income from business is calculated by deducting allowable expenses from gross income. Expenses include cost of goods sold, operating expenses, employee remuneration, and other necessary costs incurred for generating income.
Taxation of Business Profits
Business profits are subject to taxation under the Income Tax Act. Different tax rates apply based on the nature of the business, and businesses must comply with various tax regulations to ensure accurate reporting and payment of taxes.
Deductions and Exemptions
The Income Tax Act provides for certain deductions and exemptions that can be claimed to reduce taxable income. Common deductions include expenses related to business operations, capital investments, and specific allowances as prescribed by tax laws.
Assessment and Returns
Business entities must file income tax returns annually, reporting their profits and gains. The income assessment involves scrutiny by tax authorities to ensure compliance and accuracy in reported income.
Challenges in Business Profit Accounting
Businesses may face challenges in accurate profit calculation, including issues with inventory valuation, differentiating between capital and revenue expenditure, and adhering to changing tax regulations.
Administration of Income Tax Act
Administration of Income Tax Act
Introduction to Income Tax Act
The Income Tax Act governs the taxation of income in India, outlining the duties and powers of tax authorities and the obligations of taxpayers.
Roles of Tax Authorities
Various tax authorities are responsible for the implementation of the Income Tax Act, including the Central Board of Direct Taxes (CBDT), which formulates policies and oversees tax administration.
Assessment Procedures
The assessment of income is a critical aspect of tax administration, involving the evaluation of taxpayers' income and the determination of tax liability. This includes filing returns, scrutiny assessments, and final assessments.
Appeals and Revisions
Taxpayers have the right to appeal against assessment orders. The appeals can be made to appellate authorities, such as the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal.
Compliance and Penalties
Compliance with the Income Tax Act is mandatory for taxpayers. Non-compliance can lead to penalties and interest on the unpaid tax.
Recent Amendments and Digitalization
The Income Tax Act is subject to amendments to address changes in economic conditions, and the government is increasingly adopting digital platforms for filing taxes and conducting assessments.
