Taxation's historical roots and its evolution over time.
Objectives of taxation:
Revenue generation for government expenditure.
Economic regulation and stabilization.
Income redistribution.
Social welfare funding.
Direct and Indirect Taxes
Direct Taxes: Taxes levied directly on the income or wealth of individuals or organizations. The burden of the tax cannot be shifted to someone else. Example: Income Tax.
Indirect Taxes: Taxes levied on goods and services. The burden of the tax can be shifted to the end consumer. Example: Sales Tax, GST.
Concept of Tax and Fee
Tax: A compulsory contribution to state revenue, levied by the government on income, profits, and goods and services.
Fee: A payment for specific services rendered by the government. It is directly linked to the service provided and is not compulsory in nature.
2. Definitions:
Assessee
A person who is liable to pay tax under the Income Tax Act. This includes individuals, Hindu Undivided Families (HUFs), companies, firms, etc.
Assessment Year
The 12-month period starting from April 1st every year. It is the year following the previous year, in which income earned in the previous year is assessed and taxed.
Previous Year
The financial year immediately preceding the assessment year. Income earned during this year is taxed in the following assessment year.
Business
Any trade, commerce, or manufacturing activity carried on for profit.
Agricultural Income
Income derived from agricultural land, subject to certain conditions and exemptions as per the Income Tax Act.
Income
Any monetary benefit or gain accruing to a person, as defined under the Income Tax Act. It includes various heads of income like salary, income from house property, business income, capital gains, and income from other sources.
3. Residence (Sections 6, 7 and 9)
Residential Status
Determination of an individual's residential status (resident, non-resident, or resident but not ordinarily resident) is crucial as it determines the scope of taxation.
Section 6 provides the rules for determining the residential status of an individual.
Sections 7 and 9 deal with income deemed to be received or accrued in India.
4. Salaries (Sections 15 to 17)
Components of Salary
Section 15 deals with the basis of charge for income under the head 'Salaries'.
Section 16 provides for deductions from salary income.
Section 17 defines 'salary', 'perquisite', and 'profits in lieu of salary'.
5. Income from House Property (Sections 22 to 27)
Taxability of Rental Income
Section 22 is the charging section for income from house property.
Sections 23 to 27 provide the rules for determining the annual value of the property and allowable deductions.
6. Profits and Gains of Business or Profession (Section 28)
Business Income
Section 28 lists the incomes chargeable to tax under the head 'Profits and Gains of Business or Profession'.
7. Depreciation Allowance (Section 32)
Depreciation
Section 32 allows depreciation as a deduction for assets used in business or profession.
Depreciation rates are prescribed under the Income Tax Rules.
8. Business Expenditure and Loss (Section 37)
Allowable Expenses
Section 37 allows deduction for business expenditures not specifically covered under sections 30 to 36, provided they are incurred wholly and exclusively for the purpose of the business.
9. Capital Gains (Sections 45, 46 and 54)
Tax on Capital Assets
Section 45 is the charging section for capital gains.
Section 46 deals with capital gains on distribution of assets by companies in liquidation.
Section 54 provides exemption from capital gains on the sale of a residential house if the proceeds are reinvested in another house.
10. Income from other Sources (Sections 56 to 58)
Residual Income
Sections 56 to 58 cover income that is not chargeable under any other head.
This includes interest income, dividend income, gifts, etc.
Section 56 specifies the incomes that are taxable under this head.
Section 57 specifies the deductions allowed from such income.
Section 58 specifies the amounts not deductible from such income.