Income tax act 1961

Girish M.C
Asst. Prof. of Commerce
1
Girish M C , Asst Prof of Commerce, Panampilly
Memorial Govt . College, Chalakudy

Income Tax
 Taxes are the primary sources of revenue for the Govt .
It is levied by the Govt on the Taxpayers. It is a
contribution by individuals as well as organisations to
the Govt to undertake various public activities such as
education , infrastructure , health , poverty and
national security etc..
 Taxes are broadly divided into two :
 1. Direct taxes
 2. Indirect Taxes
2

Direct Tax
 Direct tax is levied directly on the income of the
person , which is normally levied on persons , are
assessed on the basis of their income or property. This
tax is directly paid by persons to the Govt.
3

Indirect Tax
 In indirect taxes , the person who pays the tax , shifts
the burden to the person who consumes the goods or
services. Before 2017 the indirect tax comprises of
various taxes and duties like Service tax ,sales tax,
Value added tax ( VAT), Customs duty .Excise Duty
and etc..
 On 1/7/2017 onwards all such indirect taxes are
submerged in one law which was named as “ The
Goods and Services Tax Act 2017” (GST) .
4

Brief History of Income Tax in India
 Nearly 2000 years ago In Greece , Germany and Roman empires
taxes levied on the basis of turnover and occupations.
 1. Tax are first introduced by the Sir James Wilson in the year
1860 in order to meet the loss caused on account of military
activities in 1857.
 2. In Tax Act passed in the year 1886 , this Act was in force for a
long time.(1886 to 1917)
 3.Income Tax Act passed in the year 1918 (1918 to 1922).
 4. 3.Income Tax Act passed in the year 1922 (1922 to 1961).
 5. 3.Income Tax Act passed in the year 1961.
 6. Amend 1984, 1987,1988,1989, 1991 ,1992, 1993 –
 This Act is applicable to whole of India including Jammu and
Kashmir )
5

CBDT
 The Central Board of Direct Taxes :
 It is the apex body of the income tax department . It is
the supreme authority and administrative head of the
Income Tax Department. It functions as a part of the
Finance Ministry of the Govt of India.
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Components of the Income Tax
Law
 1. The Income Tax Act 1961 (Amendments up to date)
 2.The Finance Act Passed every Year.
 3.The Income Tax Rules 1962.
 4.Judjment of the Court of Law
 5. Circulars, Orders, notifications and instructions
issued by the Income Tax department from time to
time.
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Basic terms in Income Tax Act
(U/S 2 of the Income Tax Act 1961)
 Income:(Section 2 (24))
 Income means money or money’s worth received from any
definite source with certain amount of regularity. It is a
periodical receipt from one’s business , land , work ,
investment etc,. The Act does not define income . It simply
lists some of the items that can be included in the income.
They are :-
 Profit or gain
 Dividend , interest
 Voluntary contribution received by a charitable
institutions.
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 Value of perquisites or profit in lieu of salary.
 Interest , salary , bonus commission or remuneration
earned by a partner of a firm from such firm.
 Capital Gains.
 Profit and Gains from the business of banking carried
on by a co-operative society with its members.
 Winnings from lotteries , cross world puzzles , races
including horse races and card games , gambling or
betting.
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 Deemed income
 Any sum contribution to PF or superannuation fund
by the employers.
 Any sum received from under Key man Insurance
Policy. (Policy taken by a person on the life of another
person )
 The profit and gains of business of Banking .
 Any consideration received excess for issuing shares
exceeds the fair market value of the shares.
 Any advance received for negotiation for capital assets
and fails negotiations.
10

 Subsidy received for reimbursement . (LPG and other
subsidy not included )
 Any some received or value of property received
without consideration or inadequate consideration on
or after 1-4-2017.
 Compensation due or received in termination of
employment
 Fair market value inventory converted into or treated
as , capital asset (w.e.f AY 2019-2020)
 Gift exceeds Rs 50000, received by an individual or
HUF from any person during the previous year without
consideration.
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Agricultural Income
 Agricultural income (u/s 2 (1A)
 Agricultural income earned by a taxpayer in India is
exempt under section 10(1) of the income tax act 1961.
as per the section 2(1A) agricultural income means :-
 a) Any rent received or revenue derived from land which
is situated in India and is used for agricultural purpose.
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Agricultural Income
b) Any income derived from such land by agricultural
operations including processing of agricultural produce so as
to render it fit for the market or sale of such produce.
c) Any income from a farm house subject to satisfaction of
certain conditions.
Any income derived from saplings or seedlings grown in a
nursery shall be deemed to be agricultural income.
13

Persons (U/S 2(31)
 Person includes :
 1. Individuals
 2. HUF –Karta and coparceners.
 3.Company
 4.Firm.
 5.AOP or Body of Individuals
 6.Local Authority
 Artificial Judicial persons. Public corporations by Act of
legislature.
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Assessee - 2(7)
 The term assessee means a person by whom any tax or
any other sum of money is payable under this Act and
includes :
 A) Proceedings taken against a person under this act
 Amount of refund due to him as per this Act
 Persons who is deemed to be an assessee
 Persons who is deemed to be an assessee in default as
this Act.
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Assessment Year -2 (9)
 A.Y is a period of twelve months commencing from
First April of the every year to an end of 31st March of
the next year. ie , The year in which the income of the
previous year is assessed is called A.Y
16

Assessment year- 2 (9)
 Assessment year is the year in which you will file your
return for the previous year. For instance, if you start
your job on 1 January 2019, your tax year closes on 31
March 2019. 2018-19 is your previous year and your AY
is 2019-20. The last day to file your return is 31 August
2019.
17

Previous year -3
 Previous year means the financial year immediately
preceding the assessment year. Thus previous year is
the financial year or a period of 12 months
immediately preceding the A.Y
 The P.Y is very important because income tax is
charged on the total income earned during the
previous year.
18

Exceptions to General rule for
Assessment.
 1. Income from non-residents from shipping business
(172)
 2. Income of person leaving India (174)
 3.Income persons likely to transfer assets to avoid tax
(175)
 4. Income of a discontinued business , professions or
vocation . (176)persons
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Heads of Income
 1. Income from Salaries
 2.Income from House property
 3. Income from Profits or Gains of Business or
profession.
 4. Capital Gains
 5.Income from Other sources.
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Gross Total Income -80B (5)
 G.T income means the total income computed in
accordance with the provisions of this Act . Before making
any deductions under sections 80C to 80U. It is the
aggregate of taxable income under the different heads of
income such as income from salary, house property ,
income from profits or gains of business , capital gains and
other sources…
21

Total Income
 Total income means the amount left after making
the deductions under Section 80C to 80U from
the gross total income. Income tax will be
calculated on this total income . So this income is
also called taxable income.
22

Maximum marginal rate of tax -
2(29)
 It means the rate of income tax (including
surcharge ) applicable in relation to the highest
slab of income in case of individual , AOP, or BOI ,
as the case may be as specified in the Finance Act
of the relevant P.Y.
23

Average rate of Income tax -2(10)
 The total tax divided by the Total income multiplied
by the 100.
 Average rate =Total Tax/Total Income *100.
24

Casual Income
 A non recurring income or income received
casually is called casual income. It is an
unexpected income . Winning from lottery ,
income from card games, crossword puzzles and
other games or gambling or betting in any form are
casual income.
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 Thanks
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Income tax act 1961

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