Income Tax India - A Quick Intro

Indian Income Tax - Bird's Eye View

Income Tax Question Income Tax India A Quick Intro

Income Tax India: Every tax statute contains two parts, viz.,

  1. Determination of tax liability and

  2. Assessment Procedures thereof.

On this page:

  1. Income Tax - Charging Section
  2. Definition of the Term 'Income'

The first part ‘Determination of tax liability’ discusses the manner in which the tax shall be determined and charged.

The second part ‘Assessment Procedures’ deals with the authorities who administer the legislature, their powers and how they would assess the liability in the manner provided in the first part.

The charging section in Indian Income Tax statute, mainly answers the following questions: -

  1. Who is liable to pay the Income Tax India?

  2. What is the period for which the tax is to be paid?

  3. What is the rate of tax or tax amount payable?

  4. On what amount, the tax is payable?

Income Tax India Charging Section

Section 4 is the charging section for the Income tax Act, 1961 (the Act). It provides for the charge and collection/payment of Income Tax India.

The charging section, under the Act, reads as under: -

  • Where any Central Act enacts for any Assessment Year that income-tax shall be charged at any rate or rates,

  • Income-tax at that rate or rates (including additional tax) shall be charged for that year in accordance with and subject to all the provisions of the Act.

  • in respect of the Total Income of the Previous Year of every Person

  • However, if by virtue of any provision of the Act, Income Tax India is to be charged in respect of the income of a period other than the previous year, then it shall be charged accordingly.

  • The Income-tax chargeable as above shall be deducted at source or paid in advance, if so required under any provision of the Act.

The four questions discussed above are answered, under the Act, as under: -

  1. Who is liable to pay the Income Tax India? - Person

    Person includes

    1. an Individual,

    2. a Hindu Undivided Family,

    3. a Company,

    4. a Firm,

    5. an Association of Persons or Body of Individuals, whether incorporated or not,

    6. a Local Authority, and

    7. every Artificial Juridical Person, not falling within any of the above classes.

  2. What is the period of payment? - Previous Year, subject to certain exceptions

    As per section 3 of the Act, "Previous Year" means the financial year immediately preceding the Assessment Year.

    The previous year for the Assessment Year 2012-13 will be from 01 April, 2011 to 31 March, 2012. However, if a new business is commenced on 01 August, 2010, then the previous year for the said business would be 01 August, 2011 to 31 March, 2012.

    "Assessment Year" means the period of 12 months commencing on the First day of April every year, i.e., the Assessment year 2011-2012 would be the financial year beginning on 01.04.2011 and the Assessment year 2012-2013 would be the financial year beginning on 01.04.2012.

    This is the year in which the total income of the relevant "previous year" of every person is normally assessed to Income Tax India.

  3. What is the rate of Income tax or tax amount payable? - Income-tax at the rate or rates enacted by Central Act for every Assessment Year.

    Barring few instances, in most cases, the Income tax rate(s) has to be specified by a Central Act, viz., the Finance Act of the relevant year.

    This Central Act is known as the "Finance Act", and is suffixed with the year in which it is passed.

    The Finance Act is an annual Act passed during the Budget Session of the Parliament.

    The rates applicable to Assessment Year 2012-2013 are as prescribed by "The Finance Act, 2011" and re-affirmed in "The Finance Act, 2012".

    The rates applicable to Assessment Year 2013-2014 are as prescribed by "The Finance Act, 2012" and re-affirmed in "The Finance Act, 2013".

    Check the Personal and Corporate Income Tax Rates for AY 2012-13.

  4. On what amount, the Income tax is payable in India? - Total Income

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Income Tax India - 'Income' Definition

Total Income is the total amount of income earned by the person.

The term "Income" has been defined under section 2(24) of the Act, in an inclusive manner to include: -

  1. Profits and Gains;

  2. Dividend;

  3. Voluntary Contributions received;

  4. Value of any perquisite [taxable under section 17(2)] or profit in lieu of salary [taxable under section 17(3)]

  5. Any special allowance or benefit, other than perquisite, specifically granted to the assessee to meet expenses wholly, necessarily and exclusively for performance of the duties of an office or employment of profit

  6. Any allowance granted to the assessee either to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at a place where he ordinarily resides or to compensate him for increased cost of living;

  7. the value of any benefit or perquisite, whether convertible into money or not, obtained from a company either by a director or by a person who has a substantial interest in the company, or by a relative of the director or such person, and any sum paid by any such company in respect of any obligation which, but for such payment, would have been payable by the director or other person aforesaid ;

  8. the value of any benefit or perquisite, whether convertible into money or not, obtained by any representative assessee mentioned in section 160(1)(iii) or 160(1)(iv) or by any person on whose behalf or for whose benefit any income is receivable by the representative assessee (such person being hereafter in this sub-clause referred to as the "beneficiary") and any sum paid by the representative assessee in respect of any obligation which, but for such payment, would have been payable by the beneficiary;

  9. Any compensation or other payment due to or received by any person for termination of his office/agency or modification of conditions therein as mentioned in section 28(ii);

  10. Income from trade, profession or similar association, and value of perquisite (convertible into money or not) arising from business/profession as mentioned in section 28(iii);

  11. Any sum chargeable to income tax India in the nature of remission or cessation of liabilities / expenditure, bad-debts written-off recovered, profit on sale of certain assets (power generation undertakings or those relating to scientific research), withdrawal of certain reserves, etc., under section 41 or as the case may be, section 59;

  12. Profit on sale of Import Licence, Cash Assistance from Government, Duty drawbacks as mentioned in section 28(iiia) or section 28(iiib) or section 28(iiic);

  13. Value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession;

  14. Any interest, salary, bonus, commission or remuneration, by whatever name called, due to or received by a partner from the firm, to the extent not disallowed under section 40(b);

  15. Capital gains chargeable under section 45;

  16. Profits and gains of any business of insurance carried on by a mutual insurance company or by a co-operative society, computed in accordance with section 44 or any surplus taken to be such profits and gains by virtue of provisions contained in the First Schedule;

  17. Profits and Gains of any business of banking (including providing credit facilities) carried on by a co-operative society with its members;

  18. Any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever;

  19. any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees' State Insurance Act, 1948, or any other fund for the welfare of such employees;

  20. any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy as referred to in section 10(10D);

  21. Certain amounts in cash or kind received/receivable for not carrying out any activity in relation to any business or for not sharing any intangible assets likely to assist in the manufacture/process of goods or providing services;

  22. Any sum of money or value of property referred ton section 56(2)(v) or section 56(2)(vi) or section 56(vii) or section 56(2)(viia) received, without consideration or without adequate consideration, by an Individual or HUF.

The above definition of income is only an inclusive definition and therefore any other income not specifically mentioned is also chargeable to tax.

There are instances, like section 28(iiid) or section 28(iiie) or section 28(vii), which have not been included within the definition of income under section 24, but nevertheless, being charged to income tax India.

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