INCOME TAX AND

ACCOUNTS
SUBMITTED TO: SUBMITTED BY:

Dr. Angreesh Agarwal Gargi –Mehrotra

BBA - A
BB2017004
* Let us begin by understanding the meaning of tax. Tax is a fee
charged by a government on a product, income or activity.
* There are two types of taxes: Direct taxes and Indirect taxes.
* If tax is levied directly on the income or wealth of a person, it
is a direct tax e.g. income tax, wealth tax.
* If tax is levied on the price of a good or service, then it is
called an indirect tax e.g. excise duty, custom duty, service tax
and sales tax or value added tax. In the case of indirect taxes,
the person paying the tax passes on the incidence to another
person.
* The reason for levy of taxes is that they
constitute the basic source of revenue of the
government. Revenue so raised is utilised for
meeting the expenses of government like
defence, provision of education, health care,
infrastructure facilities like roads, dams,
etc.
* Every Individual and Hindu Undivided
Family whose total income exceeds the
exempted limit of income, shall be
liable to pay income tax. Besides this,
a Firm, a Company, a Co-operative
Society, Association of Persons and
Body of Individuals, etc. are also liable
to pay income-tax.
* Income-tax is a Direct Tax: Income-tax is borne by the person
upon whom it is levied. It cannot be shifted to any other person.
* Income-tax is a Central Tax: Income-tax is levied and collected
by Central Government.
* Income-tax is computed upon Net Taxable Income of Previous
Year: Net taxable income during the previous year is computed as
per the provisions of Income-tax.
* Exempted Limit of Income: Certain amount of income is
exempted from Income-tax Act. This amount is called exempted
limit of income. Any income, which exceeds this limit shall be
taxable.
* Income-tax is Payable by every Assessee: Assessee includes an
individual, Hindu undivided family, a firm, a company, every
artificial person.
* Income is the consumption and savings
opportunity gained by an entity within a
specified timeframe, which is generally
expressed in monetary terms. However, for
households and individuals, "income is the
sum of all the wages, salaries, profits,
interest payments, rents, and other forms of
earnings received in a given period of time."
* Agricultural income refers to income
earned or revenue derived from sources
that include farming land, buildings on
or identified with an agricultural land
and commercial produce from a
horticultural land. Agricultural income
is defined under section 2(1A) of the
Income Tax Act, 1961.
* If an assessee, by chance or without
any pre-expectation or accidently gets
any income which is of non-recurring
nature it is regarded as casual income.
This income includes income includes
income from lottery winnings, income
from horse race, cross-word puzzles,
playing cards, income from betting etc.
* The term ‘Assessment year’ is considered
very important in the study of income-tax.
The income-tax is imposed on the net income
of an assessee during assessment year related
with previous years’ income. According to
Section 2(9) of Income-tax Act, ‘Assessment
ends on 31st March of next year. For example,
assessment year 2018-19 means the year
which shall start on 1st April, 2018 and will
expire on 31st March, 2019.
* Income-tax is levied on net taxable income of
previous year. So it is very important to make clear
the meaning of the term ‘Previous Year’. In simple
words, a previous year is that year in which the
income is earned and received. Previous year is
also called ‘Financial Year’ or ‘Accounting Year’.
In other words, previous year is a period of
maximum twelve months which will certainly end
on 31st March every year (prior to assessment
year). For example, the period of previous year
related to the assessment year 2018-19 ended on
31st March, 2018.
* Gross total income of an assessee means the
before deducting deductions under sections 80C
and 80U. If an assessee has taxable salary income
under only one head, then only that income under
one head will be treated as Gross Total Income. For
example, Shri Suresh, who is employed in a
company, has taxable salary income of ₹4,80,000 in
the previous year under the head ‘Income from
Salaries’ only. He has no any other source of his
income, then taxable salary of ₹4,80,000 shall be
his gross total income.
* The income, which is arrived after deducting
deductions under sections 80C and 80U, is called
Total Income. It is also known as Net Taxable
Income. Income-tax is computed on this income.
Net taxable income is rounded-off for calculating
income-tax in multiple of ₹10. Total Income can
never more than Gross Total Income. It will either
equal to Gross Total Income or less than Gross Total
Income. While computing Total Income, an assessee
must have knowledge of all the deductions to be
allowed u/s 80 of Income-tax Act.
* Under section 2(31) of Income-tax Act, following are included
in the term ‘Person’:
a) An Individual, e.g., Ramesh, Hari, Sita, etc.
b) A Hindu Undivided Family.
c) A Company.
d) A Firm.
e) An Association of Persons and A Body of Individuals, e.g.,
Co-operative Society.
f) A Local Body, e.g., Municipality, District Boards, etc.
g) Any Artificial Juridical Person, e.g., any god or goddess.
h) Any Artificial Person created by Law.
* If an assessee saves the income-tax by not following
provisions of tax laws clearly, it is called tax-evasion. It is
also called theft of tax. It is a completely illegal way for
escaping the tax. When the Government comes to know
about it, the assessee may be penalized and he may also be
prosecuted. In tax-evasion, the facts re concealed knowingly
and false facts are presented. It is an immoral criminal and
hateful work. It is also not in the welfare of an individual,
society and nation. For example, A doctor does not show
income earned through engaging himself in practicing
privately and does not pay tax on such income, etc.
* When an assessee brings reduction in his liability
by following the legal provisions of Income-tax Act
and taking advantages of weaknesses of the law, in
this situation the Government suffers loss. But in
this process tax laws are not neglected. This is
called tax-avoidance. As soon as the Government
comes to know any weakness of tax law, it makes
some amendment and removes such weakness.
Sometimes Government enforces any amendment
to remove weakness of tax law from preceding
date. In such case, the assessee has to refund tax
to the Government since that preceding date.
THANK-YOU