DIRECT TAX BY CA SWATI GODBOLE
DIRECT TAX Charged directly on an individual, firm, company etc. Tax on earning INDIRECT TAX Charged indirectly on everybody, whether rich or poor Tax on purchases MEANING
QUESTIONS • Whose income is charged to tax? • What is charged to tax? • When is liability for tax is computed? • Income earned during what period is taxed? • Who is liable to pay tax? • How is income & tax computed?
PERSON – Section 2(31) • Includes • An Individual • A H.U.F. • A Company • A Firm • An A.O.P/ B.O.I • A Local Authority • Every other artificial juridical person
INCOME – Section 2(24) • Includes • Profit • Dividends • Perquisites • Allowance such as D.A • Profit on sale of Import License • Export Cash Assistance • Refund of Excise or Customs duty • Remuneration received by partner of a firm
Contd. • Capital Gain • Profit of any business of insurance • Winning from lotteries, crossword puzzles, horse race, card games etc.
Important Points • Periodical Return • Illegal Income • Cash or Kind • Real Income (Remittance) • Mutual Activity- from outside source
ASSESSMENT YEAR • The period of Twelve months • Commencing on the first day of April every year • Ending on March • Year in which income is taxed
PREVIOUS YEAR • A Financial year • Immediately preceding the assessment year • Newly started business • Period beginning with date of setting up the business till March
ASSESSEE • A person • by whom any tax, interest, penalty is due • Whose assessment of income, loss or refund is pending • A deemed assessee – a representative assessee • An assessee in default
ASSESSMENT • A PROCESS • Determining, Computing • Amount of Income • Fixing the tax dues
Agricultural Income Section 2(1A) • Exempted income Section 10(1) • Meaning - • Any rent or revenue derived from land which is situated in India and is used for agricultural purposes. • Any income derived from such land by agricultural operations including processing of the agricultural produce, raised or received as rent in kind
Contd. • Income attributable to a farm house subject to the conditions that the building is situated on or in the immediate vicinity of the land and is used as a dwelling house, store house and the land is assessed to land revenue or local rate
Rent or revenue derived from land Section 2(1A)(a) • According to section – three conditions needs to be satisfied • Rent or revenue should be derived from land (may be cash or kind) • The land is situated in India • The land is used for agricultural purposes.
Land used for agricultural purposes • Most important condition whether exemption sought under section (a), (b) or (c) of 2(1A) • Agriculture & agricultural purposes not defined in act. • Based on laid down principles, the scope of the terms – • Basic operations such as sowing of seeds, planting etc. which involve expenditure of human skill and labour upon the land , necessary to constitute agriculture.
Contd. • Subsequent operations such as weeding, digging the soil around the growth, removal of undesirable undergrowths etc. are performed after the produce sprouts from the land. • Operations which basically are carried out to foster & preserve the growth. And to make them marketable. • The performance of these operations in conjunction with or in continuation of the basic operations is must to constitute part of agricultural activity.
Contd. • Agriculture does not merely imply raising of foods and grains. • It includes all the products from the performance of the basic and subsequent operations on land. • Example: fruits, vegetables, tea , coffee, sugar-cane, tobacco, spices, cotton , jute, timber, tendu leaves etc. • All products of the land which has got some utility either for the consumption or for trade & commerce
Contd. • Mere connection with land not sufficient to refer the income as agricultural. Example: poultry farming , breeding and rearing of livestock. • With effect from A.Y. 2009-10, nursery operations – income from saplings or seedlings grown in a nursery shall be deemed to be agricultural income.
Income attributable to a farm house Section 2(1A)(c) • To qualify for the above, certain conditions needs to be satisfied- • The building should be occupied by the cultivator (as a landlord or as a tenant) or receiver of rent-in-kind as a landlord. • The cultivator or receiver of the rent-in-kind should by reason of his connection with the agricultural land requires the building as a dwelling house or as a store house. • It should be on or in the immediate vicinity of land situated in India and used for agricultural purposes.
Contd. • The land is assessed to land revenue or local rate or alternatively the land is situated outside “urban areas” • (Urban area = an area which is comprised within the jurisdiction of any municipality / cantonment board having population of not less than 10000 persons or within 8 kilometers from the limits of the municipality or contentment board.) • The land or building should be used for agricultural purposes. For example giving the building on rent is not agricultural purpose and such case income will not be exempt.
Capital and revenue expenditure • Not defined under the act, but one has to follow the natural meaning & decided cases. • Acquisition of fixed asset against routine expenditure • Capital expenditure means expenses incurred while purchasing a fixed assets, as against revenue expenditure is recurring or incurred during the normal course of business
Contd. • Benefit over several years against one year • Capital expenditure benefits us for several years (life of the asset) as against revenue expenditure is consumed within a year. • Improvement as against maintenance • Capital expenditure leads to increasing the efficiency or earning capacity of the fixed asset. Whereas revenue expenditure helps in running the business smoothly.
Contd. • Lump sum payment as against periodic payments • To decide whether Capital expenditure or revenue expenditure, whether payment was made in lump sum or periodic cannot be deciding factor.
Company • Section 2(17) defines Company to mean • An Indian company or • A body Corporate incorporated under the laws of a foreign country • Any institution, association or a body, whether incorporated or not and whether Indian or non Indian, which is declared by general or special order of the CBDT to be a Company
Indian Company • Indian Company – Section 2(26) • A company formed and registered under the Indian Companies act of 1956 • A company formed and registered under any law in force in the state of Jammu and Kashmir • Any institution , association or body which is declared by the board to be a Company under section 2(17)
Dividend Section 2(22) • Under Section 2(22) – following payments or distribution by a company to its shareholders are deemed as dividend to the extent of accumulated profits of the company • Any distribution entailing the release of company’s assets. • Any distribution of debentures, debenture stock, deposit certificates and bonus to preference share holders • Distribution on liquidation of company
Contd. • Distribution on reduction of Capital • Any payment by way of loan or advance by a closely held company to a shareholder, holding substantial interest; provided the loan should not have been made in the ordinary course of business and money lending should not be substantial part of the company’s business
Total Income & its computation • It is- • Gross total Income ***** • Less: Permissible deduction u/s.80 ***** ( section 80 C to 80 U) • Net taxable income ***** • Tax is calculated on the Net taxable income as per the applicable rates. • The net taxable income is rounded off as per the provisions of section 288A and the tax payable is rounded off to as per provisions of section 288B
BASIC CONDITIONS • STAY IN INDIA IN PREVIOUS YEAR • 182 DAYS OR MORE • OR • 60 DAYS IN PREVIOUS YEAR & PRECEDING PREVIOUS 4 YEARS 365 DAYS
EXCEPTIONS • An Individual • Indian citizen, leaves India in previous year, as a crew member of an Indian Ship • OR • For employment • An Individual • Who is person of an Indian Origin or Who is an Indian Citizen • Stayed outside India • Comes on a visit to India Does not mean leaving India for taking employment outside India, need not be an unemployed person who leaves India
CONDITIONS FOR R & OR • Preceding previous 10 years, Resident at-least for two years • AND • Stay in India in preceding previous seven years 730 days.
Resident Control & Management of affairs is exercised Either completely or partially from India R & OR Status of Karta of HUF? R & OR OR NR or R but NOR HUF & RESIDENTIAL STATUS
Control & Management • Refers to Head and Brain – which direct the affairs of the business i.e. the policies, finance, disposal of profits, vital things concerning the management of the business
AOP/BOI/FIRM/Local authority/Artificial person R & OR Control & Management of affairs is exercised Either completely or partially from India COMPANY Indian always R & OR Any other company R & OR Control & Management of affairs is exercised Completely in India COMPANY/AOP/BOI/FIRMAND RESIDENTIAL STATUS
Relationship between residential status & incidence of tax • Incidence of tax on a tax payer depends • on his residential status and • also on the place & time of accrual or receipt of income.
Indian Income If income is received in India & also accrues in India (deemed to received & accrues in India) If Income is received in India but accrues outside India If Income is received outside India but accrues in India Foreign Income Income is not received in India ( not deemed to receive in India) Income does not accrue or arise in India. Indian Income & Foreign Income
INCOME DEEMED TO RECEIVE AND ACCRUE IN INDIA • Examples of Income deemed to receive • Contribution by the employer to the EPF account in excess of 12% of employee’s salary • Annual interest credited to the employee’s PF account in excess of 9.5% • Examples of Income deemed to Accrue • All income accruing or arising whether directly or indirectly through / from • Any business connection in India or Property in India or Asset or source of income in India or Transfer of Capital asset in India
Contd. • Salary payable for services rendered in India • Salary received by Indian national from Government in respect of services rendered outside India is deemed to accrue or arise in India • Any dividend paid by an Indian Company outside India • Etc.
HEADS OF INCOME • Income from Salary • Income from House Property • Profits & gains from Business & Profession • Capital Gain • Income from other sources
INCOME FROM HOUSE PROPERTY • Basic Conditions • There should be a House Property • Should be owned by the assessee • Should not be used for the business of the assessee, the income from which is taxable