Direct Tax

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Introduction

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 Tax Laws
● Government can raise funds needed for the development and defence of the country by collecting
taxes such as Income-tax, excise duties, service tax, etc from the citizens.

● As the revenue collected from income-tax helps the development of the country, it is said that
“income-tax is the price, one pays for the civilisation”.

● Constitution is the parent law in India, and all other laws should be enacted without exceeding the
framework of the constitution and subject to the norms laid down therein.

● Under the Constitution of India, the Central Government has the right to collect income tax.

● The law governing such collection of income-tax is

○ Specified in the Income-tax Act, 1961 (“the Act”)
○ Implemented according to the rules laid down in the Income-tax Rules, 1962 (“the Rules”)
○ Administered through the circular issued by the Central Board of Direct Taxes (“CBDT”)
○ Interpreted by the judgement of the Supreme Court and High Courts which settle the legal
disputes between the Government & taxpayers.

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 Scope of Study
● In this course we will be discussing the provisions of Income Tax Act, 1961 as amended upto date and
applicable to Assessment Year 2017-18.

● We will be studying basically only Sections 1 to 80 of the Act which deal with -
○ The basic concept of the income-tax law such as what is income, whose income is taxable,
income of what period is taxable, how the income is to be computed and so on.

○ The provisions relating to the computation of total income under various heads such as Salaries,
House Properties, Business or Profession, Capital Gains, Other Sources,

○ The deductions available from total income on savings for blind individuals, on mediclaim
insurance, on contribution to pension fund etc.

● With this background, let us now begin our detailed study of the Income-tax Act.

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 Scheme of Act
● Just as a book is divided into chapters and paragraphs, the Income-tax Act is divided into chapters
(from I to XXIII ie 1 to 23).

● Each chapter is divided into sections (298 in all).

● Each section deals with a specific matter (provision) and is further divided into subsections, clauses
and subclauses.

● Thus S.17(2)(c)(i) means section 17, subsection 2, clause c, subclause i.

● An “explanation” to section clarifies certain word or point of law in the section.

● A “proviso” to a section indicates an exception to the provision or a pre condition to be satisfied or how
the section is to be applied in a peculiar situation.

● Any change (amendment) in the Act is made through the Finance Act (Budget) passed every year.

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 What is Income Tax?
● Income Tax is a tax on Income, earned by a person.

● Any person, who is having the Income in excess of non-taxable limit, is required to pay tax.

● The term Income is well defined under the Income Tax Act.

● Law has taken proper care to cover all sorts of income and receipts of gains in the hands of person
chargeable to tax.

● It defines the term person in such a fashion that each and every sort of entity is covered.

● It also states clearly what income is not chargeable to tax.

● There are certain income which are exempt upto certain limit and thereafter chargeable to tax.

● Thus the technique of Computation of Income depends upon the classification of Income under
different heads of Income.

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 What is Income Tax?
● Deduction have also been specified under each head of Income to ascertain the Income chargeable to
tax under respective head.

● Over and above there are certain admissible deduction which have been stated to be deducted from
the Gross Total Income, so as to arrive at the Net Taxable Income.

● Having derived the Net Taxable Income, a person calculates his Gross Tax Liability.

● Then he considers whether there is any tax deduction at source (TDS).

● After reducing the TDS from Gross Tax Liability he arrives at the final Net Tax Liability.

● Apart from this, the act also describes various tax Authorities, procedure of assessment, collection and
recoveries, interest and penalties, appeal and revisions, offences and prosecutions etc.

● These all are well dealt with in the 298 sections of the Income Tax Act, 1961 as amended upto date.

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 What is Income Tax?
● There are hundreds of sub section, clauses, sub clauses, explanations and proviso to these 298
sections.

● Along with it, quite good number of circulars are issued by the department to clarify various provisions
of the Act.

● This act is been amended very frequently and drastically too.

● These amendments is effected through the Finance bill introduced in the parliament by the Finance
Minister.

● Once the Finance bill is approved by the parliament and gets the assent of the parliament it becomes
the Finance Act.

● Thus the Finance Act makes the amendment in the form of omission, insertions and substitutions in the
Income Tax Act.

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 What is Income Tax?
● One finds it very difficult to trace the correct provision of law at it is applicable as on a particular day,
though it is not impossible.

● The Act provides for determination of Total income of the assessee.

● It does not provide for rate of tax.

● The rate of tax on the total income is decided every year by passing the Finance Act.

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 Extends to whole of India (S.1)
S.1 states that;

1. This Act may be called the Income-tax Act, 1961 &

2. It extends to the whole of India.

Thus the Act is applicable to persons residing in India as well as to the income arising in India.

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Modules at a Glance

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Modules in Brief

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Modules in Brief

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Match the Columns

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True or False

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 True or False
● The Income Tax Act is applicable to whole of India.
Ans: True

● The Income Tax Act came into force from financial year 1962-63.
Ans: False

● The rate of tax on the total income is decided every year by passing the Finance Act.
Ans: True

● The Finance Bill makes the amendment in the form of omission, insertions and substitutions in the
Income Tax Act.
Ans: False
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 True or False
● The Finance Minister introduces the Finance Bill in the parliament
Ans: True

● The constitution of India empowers Central Government to levy tax on Income.

Ans: True

● Gross Tax Liability is calculated on Gross Total Income.

Ans; False

● Finance Bill becomes Finance Act after the assent of parliament.

Ans: True
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 True or False
● Income tax in India is governed by the Income tax Act, 1961.
Ans: True

● Income tax is a tax on tax.

Ans: False

● The Finance Act is substitute to Income tax Act.

Ans: False

● The Income Tax Act has 289 sections.

Ans: False
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MCQ

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 Multiple Choice Questions

Income Tax is a tax on _________. The Income Tax Act extends to

________ of India.
1. Income
2. Profit 1. States
3. Turnover 2. Union Territories
4. Expenditure 3. Citizens
4. Whole

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 Multiple Choice Questions

Gross Tax Liability is calculated on The constitution of India empowers

_______________. ____________ to levy tax on income.

1. Gross Total Income 1. State Government

2. Net Taxable Income 2. Central Government
3. Income 3. Parliament
4. Salary 4. Finance Minister

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 Multiple Choice Questions

The ___________ makes the The Income Tax Act, 1961 has 298
amendment in the form of omission,
__________.
insertions and substitutions in the
Income Tax Act

1.Finance Bill 1.Sections

2.Finance Minister 2.Sub Sections
3.Finance Act 3.Clauses
4. Parliament 4.Sub Clauses

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 Multiple Choice Questions

The rates of Income Tax are laid Total Income

down
1. Of one calendar year is charged to
tax in the succeeding calendar year
1. For each calendar year
2. Of one financial year is charged to
2. For each assesment year
tax in the succeeding calendar year
3. For each previous year
3. Of one financial year is charged to
4. For each head of Income
tax in the succeeding financial year
4. Of once financial year is charged to
tax in the preceding financial year.

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 Multiple Choice Questions

The law governing income tax is The rules for implementation of

specified in The Income Tax Act, income tax are contained in Income
_______ Tax Rules, _________

1. 1961 1. 1961
2. 1962 2. 1962
3. 1963 3. 1963
4. 1964 4. 1964

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Thank You!

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