P RO F E S S I O N A L P R A C T I C E II

TAXATION

Aditi G A0110 Poojan B A0410 Prima R A2110 Goral P B3410 Komal D

B4010
Sagar N B4210 Sulsa S B5310 Falgun H B 5510

CONTENTS

What is tax?
Types of taxes
direct taxes
Indirect taxes
Direct taxes : income tax
Components of income tax
Computation of income
Slabs in income tax

WHAT IS TAX ?

Tax is a fee charged by government on a product, income or activity.

Why are taxes levied ? The reason for levy of taxes is that they constitute the
basic source of revenue to the government. Revenue so raised is utilized for meeting
the expenses of the government like defense, provision of education, health care,
infrastructure facilities like roads , dams etc.
There are two types of taxes :

TAX

DIRECT:
A direct tax is a kind of charge which
is directly imposed on the tax payer
and paid directly to the government
by the person on whom it is
imposed.
INDIRECT:
An indirect tax is collected by an
intermediary from the person who
bares the ultimate economic
burden of the tax.it can be shifted
from the tax payer to the other.

Income tax
Wealth tax

Service tax
Sales/value added
tax
Customs duty

DIRECT TAXES : INCOME

TAX
The tax levied on the total personal income of an individual is called income tax.
Many jurisdictions refer to income tax on business entities as companies tax or corporate tax.

INCOME TAX ACT

COMPONENTS OF
INCOME TAX

ANNUAL FINANCE
ACTS

INCOME TAX RULES

CIRCULAR/NOTIFICATI
ONS

LEGAL DECISSIONS OF
COURT

The levy of income tax in india is governed by the

income tax act, 1961.
These undergo change every year with additions and
deletions brought by finance act passed by parliament.
Every year the finance minister of GOI present the budget
to the parliament. The budget speech contains the
detailed tax proposals. In order to implement the
proposal the finance bill is introduced in the parliament.
Once the finance bill is approved by the parliament and
get the assent of the president it becomes the finance
act.
Central board of direct taxes (CBDT) introduces rules time
to time for carrying out the purposes of the tax.
Circulars are issued by the CBDT from time to time to
deal with certain specific problems and to clarify doubts
regarding the scope and meaning of provisions.
It is not possible for the parliament to conceive and
provide all the decisions for the issues that may arise by
the implementation of any act. Hence judiciary will hear
the disputes and take decision.

DIRECT TAXES : INCOME

TAX

Levy of Income Tax: Income-tax is a tax levied on the total income of the previous year of every
person. A person includes an individual, Hindu Undivided Family (HUF), Association of Persons (AOP),
Body of Individuals (BOI), a firm, a company, etc.
Total Income and Tax Payable: Income-tax is levied on an assessees total income, such total
income has to be computed as per the provisions contained in the Income-tax Act, 1961.
Procedure for computation of total income:
1.
DETERMINATION OF RESIDENTIAL STATUS

RESIDENTIAL STATUSES UNDER

INCOME-TAX ACT, 1961.

RESIDENT
RESIDENT AND
ORDINARILY RESIDENT

RESIDENT BUT NOT

ORDINARILY RESIDENT

NON-RESIDENT

DIRECT TAXES : INCOME

TAX
2 . CLASSIFICATION OF INCOME UNDER DIFFERENT HEADS :

HEADS OF
INCOME

SALARIES INCOME FROM

PROFITS AND GAINS
HOUSE PROPERTY
FROM
BUSINESS AND PROFESSION
3 . EXCLUSION OF INCOME NOT CHARGEBLE TO TAX.
4. COMPUTATION OF INCOME UNDER EACH HEAD.
5. CLUBBING INCOME OF SPOUSE, MINOR CHILD, ETC.
6. SET-OFF OR CARRY FORWARD AND SET-OFF LOSSES.
7. COMPUTATION OF GROSS TOTAL INCOME.

CAPITAL
GAINS

INCOME FROM
OTHER SOURCES

DIRECT TAXES : INCOME

TAX
8. DEDUCTIONS FROM GROSS TOTAL INCOME

DEDUCTIONS FROM
GROSS TOTAL
INCOME
DEDUCTION IN
RESPECT OF CERTAIN
PAYMENTS
EXAMPLES

1. Life insurance premium

paid.
2. Contribution of provident
fund.
3. Medical insurance
premium paid.
4. Payment on int. on loan
taken for higher
education.
5. Rent paid.
6. Donation to certain
funds, charitable
institutions, etc.
7. Contributions to political
parties.

DEDUCTION IN
RESPECT OF CERTAIN
INCOMES
EXAMPLES

1. Profits and gains from

industrial undertakings or
enterprises engaged in
infrastructure
development.
2. Profits and gains by an
undertaking/ enterprise
engaged in development
of SEZ.
3. Certain income of cooperative societies.
4. Royalty on patents

OTHER
DEDUCTIONS
EXAMPLES

1. Deduction in case of a
person with disability.

DIRECT TAXES : INCOME

TAX
9 . TOTAL INCOME:

COMPUTATION OF TOTAL INCOME

Determination of residential status.
Classification of Income under 5
heads

SALARIES INCOME FROM

PROFITS AND GAINS
HOUSE PROPERTY
FROM
BUSINESS AND PROFESSION

CAPITAL
GAINS

Aggregation of income
Application of clubbing provisions
Set-off/carry forward and set-off of losses

Gross total income

INCOME FROM
OTHER SOURCES

Deductions from gross

total income

Total Income

DIRECT TAXES : INCOME

TAX
10.
11.
12.
13.

APPLICATION OF THE RATES OF TAX ON THE INCOME.

SURCHARGE
EDUCATION CESS AND SECOUNDARY AND HIGHER EDUCATION CESS ON INCOME TAX.
ADVANCE TAX AND TAX DEDUCTION AT SOURCE.

SLABS IN INCOME TAX