The word tax was derived from the Latin word ‘taxore’ meaning to estimate, appreciate or value. Tax is a price which each citizen pays to the state to cover his share of the cost of the general public services which he will consume. It indirectly provides employment opportunities. Taxes are compulsory contributions imposed by the government on its citizens to meet its general expenses incurred for the common good, without any corresponding benefit to the tax payer. In 1860, the British government firstly introduced tax in India. The present law of income tax is contained in the income tax Act,1961 as amended up to date; the income tax rules 1962 as amended up to date and finance Act passed by the parliament every year. Income Tax Act came into force with effect from 1-4-1962 and extends to the whole of India. Assessee [Sec 2(7)] Assessee means a person by whom Continue reading
Income Tax Concepts
Double Taxation Relief
One of the major risk in the International Business is the payment of taxes in both the countries i.e. the country in which the business is actually effected and in the country where the MNC is having its head office. This type of double taxation will definitely impede the growth and development of the MNCs in multiple ways. So the provisions are made to avoid the double taxation (Double Taxation Relief) between the two countries through two types of relief namely Bilateral Relief and Unilateral Relief. Bilateral Relief Under this scheme, relief against the burden of double taxation is worked out on the basis of mutual agreement between two countries. There are two types of agreements. In one type, the two concerned countries agree that certain incomes which are likely to be taxed in both countries shall be taxed only in of them or that each of the two countries Continue reading
Income from Capital Gains
Any profits and gains arising from the transfer of a capital assets effected in the previous year shall be chargeable to income tax under the head capital gain in the PY in which the transfer took place. It should satisfy the following conditions There should be a capital asset The capital assets should be transferred. Transfer should result in profit or gains Capital Asset means any property of any kind held by an assessee whether or not connected with his business or profession. But the following assets are not capital assets. Any stock in trade, consumable stores or raw materials held for the purpose of his business or profession. All personal effects except jewellery Agricultural land in India which is situated in rural area etc. Continue reading
Income from Other Sources
Income from other source is a residuary head of income. Any item of income which does not fall under any other four specific heads of income is to be charged under this head. According to sec 56(2) following incomes are chargeable under this head. Dividend declared by a foreign company Family pension Winnings from lottery, crossword puzzles, horse race etc Income from plant, machinery or furniture let out on hire where it is not the actual business of the assessee. Interest from securities, bank deposits Income from sub letting Any other receipts which doesn’t fall under any other heads of income. Income from agricultural land situated outside India Examiner ship fees received by college teachers Income from undisclosed source Ground rent etc Receipts without consideration in certain cases Dividend It means any amount paid by a company, out of divisible profits, whether taxable or not taxable, to its share holders Continue reading
Profits and Gains of Business or Profession
Meaning of Business and Profession Business simply means any economic activity carried on for earning profits. According to Sec 2(3) business is “any trade, commerce, manufacture or any adventure in the nature of trade commerce and manufacture”. Any transaction with a motive of selling at profits included under this concept. It is not necessary that there should be a series of transaction in a business and it should be carried on permanently. Profession is an occupation requiring purely intellectual skills or manual skills controlled by the intellectual skill of the operator. e.g. Lawyer, doctor, engineer etc. So profession refers to those activities where the livelihood is earned by the persons through their intellectual or manual skill. Continue reading
Residential Status and Tax Liability in India – Income Tax Basics
The scope of total income is determined on the basis of residential status of the assessee. For the purposes of Income Tax Act, there can be three residential status. Residential status is determined on the basis Basic conditions and Additional conditions Resident and ordinarily resident Resident but not ordinarily resident Non resident. RESIDENTIAL STATUS OF AN INDIVIDUAL Resident and Ordinarily Resident [ROR] An individual is said to be resident in India if he satisfies anyone of the basic conditions and both of the additional conditions. Resident but Not Ordinarily Resident [RNR] An individual is said to be resident but not ordinarily resident in India if he satisfies anyone of the basic conditions but does not satisfies both of the additional conditions. Non Resident [NR] If an individual does not satisfies any of the basic conditions he is said to be non resident in India Basic conditions Additional conditions A stay Continue reading