20

CHAPTER - II

DEVELOPMENT AND ADMINISTRATION OF INCOME-

TAX IN INDIA

2.1 Introduction:

Income-tax is a tax of Central Government which is collected by

taxing income earned by the persons. For the purpose, the Central

Government has passed a separate Act i.e. Income-Tax Act, 1961 under

which the procedures of taxing the incomes of the persons and collection

of income-tax has been envisaged. The Act gives definition of ‘person’

and explains how its residential status should be decided. Tax incidence

on an assessee depends on his residential status. The Central Government

under its yearly financial budget decides the rates of income-tax to be

charged on taxable income of ‘person’. For the proper administration and

collection of income-tax, the government has formed a separate

department known as Income-Tax Department which is solely

responsible for collection of income-tax and completing all the

procedures in this regard.

2.2 Indian Tax System

India has a well developed three tired tax structure. It comprises of the

Central Government, the State Governments and Local Bodies (includes

Gram-Panchayat, Municipal Corporations, and Corporations). In

accordance with the provisions of Indian Constitution the power to levy

and collect taxes is entrusted to these bodies. Accordingly these bodies

are empowered to levy and collect following taxes.

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� Central Government -

� Income-Tax (except agricultural income-tax)

� Corporate Tax

� Custom Duties

� Central Excise Duty

� Sales Tax

- Value Added Tax (on inter-state sale of goods)

- Service Tax

� Tax on Capital Gain

� Securities Transaction Tax

� Service Tax

� State Governments -

� Sales Tax (on inside state sale of goods)

� Land Revenue

� Taxes on Agricultural Income

� Stamp Duty (on transfer of property)

� State Excise (on manufacture of alcohol)

� Duty on Entertainment

� Profession Tax

� Local Bodies -

� Property Tax or Building Tax

� Octroi

� Tax on Markets

� Tax or user charges for utilities (e.g. water supply, drainage,

etc.)

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2.3 Historical Review

India is presumed to be one of the oldest civilizations of the world.

Various references from the Hindu dharmashastra and its literature has

shown that there was a taxation in one or another form from very

beginning of the civilization, though the nature, scope and objectives

were different at different stages of its development. The evaluation of

income-tax in India can be studied in the following stages:

• Vedic Period

During Vedic period there are references which show that

taxes were collected in one form or another. King was the

sovereign authority to levy and collect tax. Tax collected from

public formed part of State’s Revenue. The references about

sacrifice, argument for progressive taxation are found in the

Institute of ‘Manu’. Near about 1200 B.C. Manu had said that

equal severity upon every individual is required to make the burden

of taxes equal1.

In those days the largest share of public revenue was from a

share of the agricultural produce. Certain taxes on commerce, a

trifling were levied on street traders. No references of imposition of

super income-tax found in this period.

• Mauryan Period

During Mauryan Period, taxation had got importance for

meeting the expenses of administration. The well-known ‘Kautilya

Neeti’ was presented by Arya Chanakya (Kautilya) in which the

reference of a well planned and systematic approach to levy and

collect taxes for the state exchequer is found. Land tax, taxes on

houses in cities, contributions for maintenance of troops during

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war, duties on sale of goods in markets, taxes on imports and

exports and other taxes on incomes of persons engaged in

professions other than agriculture were some of the taxes

introduced by Kautilya2.

• Period of Kings and the Rulers:

During the days of kings and the rulers taxes were not

collected for the development of the economy, but were imposed

and collected much for personal needs of the kings and

maintenance of army for internal peace and protection from foreign

aggression.

• Mughal Period:

During Mughal period demand on agricultural produce was

the main source of State’s Revenue. It was 1/5th of the Gross

Produce. Other revenue heads were import duties, State’s share in

the spoils of the war, imposts on mines and treasure troves, etc.3

‘Aurangazeb’, one of the Mughal Emperor taxed ‘ziziya’

Kar on all kaffirs (non-believers).

Evidences found show that the Mughal Emperor ‘Akbar’,

had taxed boatmen for the waves they made on the river water.

It reveals that indigenous governments ruled in India were

well familiar with direct taxation.

• Period of East India Company:

During the period of East India Company, land revenue was

the main source of revenue. During this period tax system was

designed to protect and enlarge the interest of the East India

Company and the British Crown.

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• British Colonial Period:

In India, Sir James Wilson for the first time, imposed

‘Income-Tax; in the year 1860. This tax was introduced to meet the

losses suffered by Military Mutiny of 1857. At that time charging

income-tax was very simple matter. Thereafter various minor

amendments were made to ‘Income-Tax’. And finally in the year

1886 a new ‘Act’ was passed which properly framed ‘Income-Tax

System’. Under the act income-tax was charged on a flat rate of 5%

over the income Rs. 2000/- with a rate of 4% on salaries between

Rs. 500/- to Rs. 2000/-. At the same rate ‘Interest on Securities’

was also taxed.4

In 1916, eight different rates of tax were prescribed for different

income groups. In 1917, additional income-tax was introduced as

‘Super tax’. A peculiar feature of this Act was the tax on the

income of a year is calculated and collected in the same year itself.

However, in 1922, the All India Income-Tax Committee

recommended and passed ‘The Indian Income-Tax Act, 1922’.

Under this Act, in 1924 the Central Board of Revenue was

established. In 1939 considerable and significant amendments were

made to this Act. One of the important amendments is ‘slab rate

system’ for charging income-tax was introduced on the

recommendations of the ‘Income-Tax Enquiry Committee (1936).5

4. Period of Independence

� Period of mixed economy: (1947-1991)

After Independence India has accepted mixed economy

structure for its economic development under which five year plans

were introduced for the purpose of economic development and

equal distribution of wealth among the people.

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Though various amendments were made in Income-Tax Act,

the basic structure of income-tax was remained technically

unaltered. The taxation imposed was built on British Model.

Therefore after independence in 1947, it was expected to undergo a

fundamental change.

After Independence India had become an independent

democratic republic nation. It is governed in terms of the

constitution which came into force on 26th Jan, 1950.

In 1953-54 the Taxation Enquiry Commission estimated tax

evasion of Rs. 50 crores, while Prof. Nicholas Kaldor estimated it

as Rs. 200-300 crores. Kaldor suggested to thorough and

comprehensive reform of Indian tax system. Accordingly in 1956

Indian Government referred Income-Tax Act, 1922 to Law

Commission. In the mean time the government appointed the

Direct Taxes Administration Enquiry Committee to simplify the

Act and to prevent tax evasion. Afterwards The Central Board of

Revenue appointed a separate committee to consider the reports

both of the Law commission as well as the Direct Taxes

Administration Enquiry Committee. After the study of both the

reports in April 1961 in consultation with the Ministry of Law, the

Income-Tax Bill, 1961 was introduced in Parliament which was

passed in September, 1961 and the Income-Tax Act, 1961 came

into force.6

� Period of New Economic Reforms: ( after 1991)

Income-Tax Act, 1961 is in operation for about half of a

century with additions, alterations, modifications, insertions,

omissions, explanations and with supporting Schedules to the Act

for various reasons like requirement for additional revenue,

26

simplification of tax law, decisions at a number of court cases,

changing economic and political situation, recommendations made

by a number of Enquiry Committee and economics.

Since year 1991, Indian tax system has under gone a drastic

change in accordance with liberal economic policy and WTO

commitments of the country. The government set up a special

committee, the Raja Chelliah Committee on Tax Reforms, to

review the country's tax system. This committee recommended, to

reduce customs and excise duties, to lower corporate tax rates, to

levy taxes on services like insurance, telephones etc., to simplify

income-tax return filing procedures. Government approved various

committees and commissions with various goals and objectives.

Marginal tax rate and number of rate categories were reduced since

1991-92 and better compliance is to be achieved. In 1996-97, MAT

(minimum alternate tax) is introduced due to which ‘zero tax’

companies were minimized. Number of company assessees were

increased with increase in direct tax revenue to government. TDS

(tax deducted at source) is also an important reform due to which

‘hard to tax’ group came under tax net.7

The performance of income-tax can be evaluated, in relation

to direct tax collection and number of assessees. The following

table no. 2.1 demonstrates the trends in direct tax collection

classifying the same into corporate tax, personal income-tax and

other direct tax.

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Table No. 2.1

Direct Taxes Collection

(amounts in crores Rs.)

Actual Collection Financial

Year Corporate Tax Income-Tax Other Direct Tax

Total

1996-97 18567 18234 2094 38895

1997-98 20016 17101 11163 48280

1998-99 24529 20240 1831 46600

1999-00 30692 25655 1612 57959

2000-01 35696 31764 845 68305

2001-02 36609 32004 585 69198

2002-03 46172 36866 50 83088

2003-04 63562 41386 140 105088

2004-05 82680 49268 823 132771

2005-06 101277 63630 301 165208

2006-07 144318 85548 315 230181

2007-08 192911 118904 387 312202

2008-09 213823 123967 422 338212

Source:

http://www.incometaxindia.gov.in/archive/AHBUPD1901_2010.pdf

From table no. 2.1 it can be seen that income-tax revenue to

total tax revenue of the Government, is increasing continuously.

Per capita tax revenue is also improving steadily. It can be seen

that personal income-tax was reduced to Rs.17101 crores in 1997-

98 from Rs.18234 crores in 1996-97 due to ‘tax evasion’ cases.

Remedial actions were taken for ‘tax evasion’ and thereafter

personal income-tax is increasing continuously. The foregoing

table no. 2.2 shows that with the increase in direct tax revenue of

the government, number of assessees also has gone up by 2.80

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times between the period 1996-97 and 2008-09. Total number of

assessees were 1,16,43,543 in the year 1996-97 which are

increased to 3,26,50,627 in the year 2008-09. The details are as

under:

Table No. 2.2

Number of Effective Assessees

Year Co. Individual H.U.F. Firms Trusts Others Total

1996-97 227228 9761426 412470 1158319 49629 34471 11643543

1997-98 274319 11194953 437251 1172647 51865 36701 13167736

1998-99 295327 15135956 469730 1228023 83847 41328 17254211

1999-00 309627 17653745 507843 1272217 87165 46427 19877024

2000-01 334261 20662926 553194 1336861 63999 51035 23002276

2001-02 349185 23734413 607519 1378706 97272 58784 26225879

2002-03 365124 25935556 644489 1345232 117304 57224 28464929

2003-04 372483 26624224 654848 1338613 154276 57952 29202396

2004-05 373165 24792990 620468 1235373 71375 65190 27158561

2005-06 382021 27370659 642759 1234424 74543 58077 29762483

2006-07 398014 29355248 761439 1241642 75610 71184 31903137

2007-08 498066 30868243 780853 1368373 74077 73189 33662801

2008-09 327674 30101260 768845 1310849 71145 70854 32650627

Source: http://www.incometaxindia.gov.in/archive/AHBUPD1901_2010.pdf

Due to economic reforms growth rate of economic development

has increased. Standard of living of people is also increased as their

earnings are increased. From the table no.2.2 it can be easily observed

that number of assessees are increasing continuously. Majority of these

assessees are availing services from tax consultants in compliance of tax

matters.

The present study is restricted to individual, partnership firm and

company assessees. Income-tax related to individual assessee is called as

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‘Personal Income-Tax’ and income-tax related to company assessee is

called as ‘Corporate Tax’. Tax rates in details are as under:

2.4 Personal Income-Tax

The income-tax is levied and collected according to the residential

status of an assessee. While levying income-tax the principles of

progressive, regressive or proportional are used. A progressive tax levies

progressively higher tax rates as earnings reach higher levels. A

regressive tax levies income up to a certain amount, e.g. tax on first Rs.

1,00,000/- earned. Flat tax method taxes all earnings at the same rate. For

different types of income different methods of taxation may be used.

In India up to 31st March 1939, ‘higher the income, higher the rate’

i.e. tax is to be charged on whole amount of total income at the rate

applicable to the step in which the total income falls. Thereafter ‘Slab

System of Taxation’ method is adopted. In this method income is divided

in different slabs and there is a separate rate of tax for separate slab.

Initially in this ‘slab system’ two sets of income groups were provided

one pertaining to ‘income-tax-payers’ and the other pertaining to the

‘super tax-payers’ where in the tax-payers were divided into income-tax-

payers whose total income was below Rs. 25,000/- and super tax-payers

whose income was above Rs. 25,000/- and charged accordingly at two

separate rates.8 This system continued until the assessment year 1965-66

when super tax was merged into income-tax and nine slabs were

provided. The first slab was of income below Rs. 5,000/- and maximum

tax of 65 % is for income above Rs. 70,000/-. This Tax structure

continued till the assessment year 1968-69. In 1969-70 slabs and slab

rates were revised. For this year maximum marginal rate of 75 % was

prescribed for incomes exceeding Rs. 2,50,000/-. In 1971-72, first time

‘NIL’ slab was introduced. But the marginal rate of income-tax including

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surcharge was the highest at 97.75 % on income exceeding Rs.

2,00,000/-. In assessment year 1975-76 again slabs and slab rates were

revised on the recommendations of ‘The Direct Taxes Enquiry

Committee’ headed by Justice K.N. Wanchoo. Marginal rate of tax

including surcharge has been reduced to 67.5% and continued to be same

till assessment year 1984-85. This rate was reduced to 61.875% in 1985-

86 and to 50% in assessment year 1986-878.

Though the rates of taxation imposed were very high, the yield was

not proportionately high. Tax evasion was the principal reason. Salaried

group, who cannot conceal its income, was the only honest tax-payer

group. Due to high rates of income-tax economy witnessed extensive tax

evasion and rise of black money. As such, as a policy matter there has

been continuous reduction in income-tax rates. Policy was adopted during

last two decades to avoid tax evasion and rise in black money.

In the assessment year 1992-93, the exemption limit was Rs.

22,000/- and maximum 50% tax was levied on the income above Rs.

1,00,000/-. In 1995-96, the exemption limit was Rs. 35000/-. In

assessment year 1998-99 exemption limit was raised to Rs. 40,000/- and

above Rs. 1,50,000/- 30% tax was levied. The exemption limit was raised

to Rs. 50000/- in 1999-2000. This limit was again raised to Rs. 1,00,000/-

in 2005-06. In the assessment year 2008-09 exemption limit was Rs.

1,10,000/- and maximum 30% tax was levied on the income above Rs.

2,50,000/-. In the year 2009-10 exemption limit was Rs. 1,50,000/- and

maximum 30% tax was calculated on the income above Rs. 5,00,000/-.

For assessment year 2010-11 exemption limit was 1,60,000/- and the

maximum tax was of 30% on the income above Rs. 5,00,000/-. For

assessment year 2011-12 exemption limit was 1,60,000/- and the

maximum tax was of 30% on the income above Rs. 8,00,000/-. In

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addition to this certain percent of tax on total tax of the assessee is levied

as super tax and education cess9.

2.5 Income-tax rates for partnership firms:

In Income-Tax Act, ‘firm’, ‘partner’ and ‘partnership’ have the

separate meaning, but while calculating the taxable income of the firm,

any interest, salary, commission, bonus or other remuneration paid to any

partner is not allowed as deduction. Firm’s total income shall be

calculated as like ‘profits and gains of business or profession’. For this

purpose Act contains certain deductions which are expressly allowable

from firm’s income. The Act also contains certain expenses which are

expressly disallowable. With these there are some other deductions which

are allowable on the basis of general commercial principles. Income

earned by the firm from the source other than business income is to be

added in the income of the firm and the total taxable income of the firm

can be achieved. Whole amount of profit earned by the firm is taxable.

Previously there were slabs for rate of income-tax for partnership

firms too. For assessment years 1977-78 to 1979-80 first Rs. 1,000/- were

tax free, next Rs. 24,000/- were taxed at 5% and income above Rs. one

lakh was taxed at 24%. Thereafter in assessment years 1980-81 to 1982-

83 Rs.10,000/- were tax free. Nowadays all the firms are taxable at flat

rate of income-tax. Rate of income-tax for partnership firm from

assessment year 1993-94 to 2011-1210

are as follows:

Table No. 2.3

Income-Tax Rates for Partnership Firm

A.Y.1993-94 to 2011-12

Year Rate of Income-Tax

1993-94 to 1997-98 40%

1998-99 to 2005-06 35%

2006-07 to 2011-12 30%

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2.6 Corporate Tax:

Corporate tax is the most important tax of all direct taxes imposed

by central government. It is a tax imposed on the income of the

companies. The rates of corporation tax were different for domestic

companies and foreign companies. There are no slabs as in personal

income-tax. Income of the companies is taxed at flat rate.

The rates of corporate tax were quite high till the year 1991, but

after adoption of new economic policies in the year 1991, to stimulate

growth process and to achieve foreign investments, rates of corporate tax

were reduced gradually. During the assessment years 1992-93 to 1994-95

rate of income-tax was 45%, which was reduced to 40% in 1995-96. This

rate was continued up to assessment year 1997-98. In the assessment year

1998-99 this rate was reduced to 35% and again in 2005-06 the rate of

corporate tax was reduced to 30 % and till then it was pegged at 30%.11

2.7 Tax Revenue of the Central Government:

The tax revenue collected by the Central Government of India

contains both types of taxes i.e. direct tax and indirect tax. Direct taxes

include share of income-tax along with the proportionate share of each

type of tax in total tax revenue of the Government. The details of last 40

years can be seen from the following table no. 2.4

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Table No. 2.4

Central Government Tax Trends: 1972-73 to 2011-12

(amounts in Rs. crores)

Year Total

Direct Tax

% in

Total Tax

Total

Indirect Tax

% in

Total Tax

Total Central

Tax Revenue

1972-73 752 21.84 2691 78.16 3443

1977-78 1742 24.67 5319 75.33 7060

1982-83 2723 20.92 10294 79.08 13017

1987-88 4100 14.64 23915 85.36 28015

1992-93 12075 22.34 41969 77.66 54044

1997-98 27172 28.40 68500 71.60 95672

2002-03 61612 38.86 96932 61.14 158544

2003-04 76590 40.96 110392 59.04 186982

2004-05 95944 42.68 128854 57.32 224798

2005-06 120692 44.66 149572 55.34 270264

2006-07 169738 48.33 181444 51.67 351182

2007-08 231509 52.68 208001 47.32 439547

2008-09 248152 55.98 195169 44.02 443319

2009-10 271623 59.50 184913 40.50 456536

2010-

11(RE)

314606 55.81 249080 44.19 563685

2011-

12(BE)

373413 56.20 291045 43.80 664457

Note:

i) Total Direct Taxes and Indirect Taxes include Other Taxes.

ii) Data for 2010-11 are Revised Estimate and Data for 2011-12 are

Budgeted Estimates.

Sources:

http://fincomindia.nic.in/ShowContentOne.aspx?id=27&Section=1

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2.8 Income-Tax Administration

From very imposition of income-tax by British rulers in India in the

year 1860, the income-tax was administered and collected by the

Provincial Government till the year 1922. In 1922, when a separate

Income-Tax Act was passed, separate provisions for administration were

made. It was made under which ‘Board of Inland Revenue’ was provided

to perform the duty of making rules and administering the tax. In 1924,

this Board was replaced by ‘Central Board of Revenue’12

. With the

growing complexity of income-tax administration ‘Central Board of

Direct Taxes’ was constituted under ‘Central Board of Revenue, 1963.

‘Central Board of Direct Taxes is the apex body in the Administration of

income-tax. It works under the Finance Ministry. It executes all those

functions prescribed under the Act as well as entrusted by the Finance

Ministry. It consists of a number of members appointed by the Central

Government. It has certain powers conferred upon it by the Income-Tax

Act. The board for proper administration of the Act may issue such

orders, instructions and directions to other income-tax authorities as it

may deem fit. For efficient management of work of assessment and

collection of revenue it may issue general or special orders to be followed

by Income-Tax Authority.

Functional Area:

The Board has divided its functions under three subordinate

authorities viz. administration, assessment and judicial for its proper

working. Table No. 2. 5 given below shows the hierarchy of authorities.13

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Table No. 2.5

Central Board of Direct Taxes

For Administration For Assessment For appeals

Director General of Chief Commissioner of

Income-Tax Income-Tax

Director of Commissioner of

Income-Tax Income-Tax

Joint Director of Joint Commissioner of

Income-Tax Income-Tax

Assistant Director of Assistant Commissioner Commissioner of

Income-Tax of Income-Tax (A.O.) Income-Tax(Appeals)

Income-Tax Officer (A.O.) Joint Commissioner of

Tax recovery Officer Income-Tax (Appeals)

Inspector of Income-Tax

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Administration:

Administrative authorities look into the matter of proper

administration of Income-Tax Act, 1961.

Assessment:

Assessment authorities make assessment, collects tax revenue.

Appeals:

Judicial authorities hear and dispose off the appeals against

judgments of Income-Tax Officers.

Director General (DGIT) or Chief Commissioner (CCIT)

Director General of Income Tax (DGIT) or Chief Commissioner of

Income Tax (CCIT) are appointed by Central Government and perform

the functions assigned by the Central Board of Direct Taxes. They can

appoint income-tax authorities below the rank of Assistant

Commissioner. They can exercise powers of a court for making any

enquiry or investigation into concealment.

Commissioner of Income-Tax or Directors of Income-Tax

Commissioner of Income-Tax or Directors of Income-Tax are

appointed by the Central Government. They can appoint, assign

jurisdiction and functions to Inspecting Assistant commissioners and

Income-Tax Officers and can give instructions to them. They have

powers like making enquiry, transferring of cases, search and seizure etc.

Joint Commissioners

Joint Commissioners are also appointed by central government.

Their main duty is to detect tax evasion and supervise subordinate

37

officers. They have powers of making enquiry, call information, survey,

search and seizure etc.

Commissioners (For Appeals)

The Commissioners of Income-Tax (Appeals) is an appellate

authority. It is appointed by the Central Government for disposal of

Appeals. They have powers regarding discovery of evidence, call for

information, inspect registers of companies etc.

Income-Tax Officers

Class-I Income-Tax Officers are appointed by the central

government and class-II officers are appointed by Commissioner of

Income-Tax. They perform their functions within the jurisdiction of

Assistant Directors or Assistant Commissioners. They have power of

discovery and production of evidence, search and seizure, survey, make

assessment, grant refund etc.

Inspectors of Income-Tax

Inspectors of Income-Tax are appointed by the Commissioner of

Income-Tax. They are subordinate to Income-Tax officer and other

higher authorities under whom they work and perform functions assigned

to them by superiors.

2.9 Important Concepts and Definitions:

1. Assessment Year

Assessment year means a period of 12 months commencing on

1st April and ending on 31

st March of the subsequent year. Income

earned in financial year is taxed in assessment year. Assessment year

succeeds the financial year.

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2. Accounting Year / Financial year / Previous Year

Accounting Year or Financial year is also known as ‘previous

year’. It means the year immediately preceding the assessment year.

Generally previous year consists period of 12 months, only in case of

newly set up during the financial year business, this period shall be

beginning on the date of setting up of the business and ending with

the said financial year.

3. ‘Assessee’ :

An ‘assessee’ is a person:

i. From whom any tax is payable under the Act

ii. From whom any other sum of money (such as interest or penalty) is

payable under the Act

iii. Against whom any proceedings under the Act have been initiated for

the assessment of his income or loss or of amount of refund due to

him

iv. Who is deemed to be an assessee i.e. representative assessee such as

guardian of a minor or manager of a lunatic or agent of a non-

resident

v. Who is deemed to be an assessee in default i.e. a person who has

failed to discharge any obligation under the Act e.g. deduction of tax

at source, payment of advance tax etc.

In simple terms an ‘assessee’ is a person who is liable to pay

income-tax, interest and / or penalty for his own income or income

of other person. The term ‘assessee’ also includes the person

whoever failed to follow any obligation under the Act.

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4. Assessment

Term ‘assessment’ is not defined in Income-Tax Act, 1961. The

Act only states that it includes ‘re-assessment’.

Assessment means computation of total income earned or loss

suffered by the assessee during the financial year and the amount of

tax payable by him or refund payable to him.

5. ‘Income’:

According to section 2(24) of the Income-Tax Act, 1961 ‘income’

includes:

i. Profit and gains

ii. Dividend

iii. Voluntary contributions received by charitable institutions, religious

trusts, research associations etc.

iv. Any allowance granted to employees

v. The value of any perquisite or profit in lieu of salary taxable under

the ‘salaries’

vi. The value of benefit or perquisite obtained by a director or a person

substantially interested in a company

vii. Income chargeable under the head ‘profits and gains of business or

profession’

viii. Capital gain

ix. Profit and gains of insurance carried on by Mutual Insurance

Company or by a co-operative society, computed in accordance with

provisions of section 44 of the Act.

x. Winning from lotteries, betting, cross-word puzzles, gambling, horse

race etc. It includes prizes won in TV / game shows

xi. Employers contribution to provident fund or super-annuation fund or

other such fluids

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xii. Any sum received under Keyman Insurance Scheme including bonus

xiii. The contribution made by the central government in the previous

year to the account of employees under a pension scheme referred to

in section 80 CCD

xiv. Cash gifts received from non-relatives exceeding Rs. 50000/-. From

01-10-2009 immovable property, movable property transferred

without or with inadequate consideration is taxable in the hands of

recipient (donee)

The definition of ‘income’ lists the items which are treated as

income. This definition is not an exhaustive, but an inclusive one. It

means any other kind of earnings not mentioned in the list of income

is also to be included and to be treated as income.

6. ‘Person’ :

The term ‘person’ includes -

i. An Individual

ii. A Hindu Undivided Family

iii. Partnership Firm

iv. A Company

v. An Association of Persons

vi. A Local Authority

vii. Every Artificial Judicial Person

The definition of ‘person’ given by the Act is very simple. It

includes natural human beings as ‘individuals’ and other persons

who are established under various Acts.

Legal status of the assessee i.e. whether the assessee is a firm or

company or artificial judicial person etc., is very important in

41

determining assessee’s tax liability. The tax rates are different

for different legal status of the assessees.

7. Total Income:

According to Income-Tax Act, incomes earned are classified and

assessed under five heads viz;

i. Income from salary

ii. Income from house property

iii. Profits and gains from business or profession

iv. Capital gain and

v. Income from other sources

Total of these five income heads is called as ‘Gross Total Income’.

8. Taxable Income:

After claiming deductions under chapter VI-A from gross total

income, ‘Taxable Income’ of the assessee is arrived at. This is

explained in the following table no. 2.6

42

Table No. 2.6

Computation of Taxable Income

Name of the Assessee :

Status :

P.A.N. :

Assessment Year :

Previous Year :

Particulars Rs.

***

***

***

***

***

***

***

Income from salary

Income from house property

Profits and gains from business or profession

Capital gain

Income from other sources

Gross Total Income

Less: Deductions under chapter VI-A (if any)

TAXABLE TOTAL INCOME ***

43

REFERENCES:

1. Vinay Kumar (1988), Tax System in India and Role of Income-Tax,

Deep and Deep Publications, New Delhi. (page 25)

2. National Website of Income-Tax Department of India

3. Vinay Kumar (1988), Tax System in India and Role of Income-Tax,

Deep and Deep Publications, New Delhi. (page 25)

4. Mehrotra H.C.(1969), Income-Tax Law and Accounts, Sahitya

Bhavan, Agra-3 (page 1)

5. Lakhotia Ram Niwas (1974), Elements of Indian Income-Tax, Asha

Publishing House, Calcutta-19 (page 1)

6. Harjeet Kaur (1992), Taxation and Development Finance in India,

Classical Publishing Company, New Delhi. (page 129)

7. htpp:// www.indolink.com/consulate/iebo/tax.htm

8. Vinay Kumar (1988), Tax System in India and Role of Income-Tax,

Deep and Deep Publications, New Delhi. (page 136)

9. Ready Reckoners:

� Shri. V.G. Mehta, Shri. N.V. Mehta (For A.Y. 1977-78, A.Y.

1979-80 to 86-87), Shri Kuber Publishing House, Bombay

� Raman Bissa (For A.Y. 2005-06), Taxcom (India), Jodhpur

(page 397-399)

10. Ready Reckoners:

� Mehta V.G., Mehta N.V.(For A.Y. 1977-78, A.Y. 1979-80 to

86-87), Shri Kuber Publishing House, Bombay

� Raman Bissa (For A.Y. 2005-06), Taxcom (India), Jodhpur

(page 399)

11. Ready Reckoner:

� Raman Bissa (For A.Y. 2005-06), Taxcom (India), Jodhpur

(page 399-400)

44

12. Vinay Kumar (1988), Tax System in India and Role of Income-Tax,

Deep and Deep Publications, New Delhi. (page 166)

13. Herekar P.M., Kulkarni S.S. (2010), A Simple Approach to Income-

Tax (A.Y. 2010-11), Phadake Prakashan, Kolhapur (page 462)

45