INCOME TAX

Income tax is an annual tax levied and collected from the income of a person. It is levied and collected by the
Central Government. Central board of direct taxes is the apex body of income tax which is governed by the
ministry of finance of the Government of India. It is vital source of revenue to the government. It is a direct tax
levied on the total income of an assessee earned during the previous year. Tax on this income is payable during
the assessment year at the prescribed rates.

What is income?

Income tax act gives an inclusive definition to the term ‘income’. It means something comes in. according to
English dictionary, income means periodical receipts from one business, land, work, investment etc. it includes
value of benefits and perquisites. Anything which can properly and reasonably be described as income is
taxable under this Act.

What are the features of income?

1. Definite source: - Existence of a definite source is essential for the chargeability of an income. It can be
compared with the fruit from the tree or crop from the field.
2. Income must come from outside: - No one can earn income from himself. It must come from an
outside source. For example, there cannot be an income from the transation between head office and
branch office.
3. Tainted income: - An income tainted with illegality is called tainted income. Income earned legally or
illegally remains taxable under the Act. Such taxation does not give immunity to the assessee against
any provision of other Acts.
4. Diversion of income V/s Application of income: - diversion of income means that apart or wholly such
income does not reach the assessee. It is diverted to some other person due to legal obligation. For
example, the amount paid by a person to his step mother from the rent of property inherited under the
provision of will of his father is legal diversion of income.
Application of income means that after receiving the income, a person spends it. For example if a person
becoming the salary due, donated it for charitable purpose, it is called application of income.
5. Temporary or permanent: - Whether the income is permanent or temporary, it is immaterial from the
tax point of view.
6. Dispute regarding the title: - In case a person is receiving some income but his title to such receipt is
disputed, it will not free from tax liability. The recipient of such income has to pay tax on such income.
7. Income in money or money’s worth: - The income may be in cash or in kind. It is taxable in both
cases.

Mr. Jayashankar . J
B.Com (Taxation Laws & Accounts), M.Com(Finance), MBA(Marketing and Finance), MA(Public Administration),
UGC – NET (COMMERCE). Income Tax Practitioner(Govt. of India). GST Practitioner(Govt. of India).
Assistant Professor
Chettinad School of Law
Chettinad Academy of Research and Education(Deemed to be University),
Chennai, Tamil Nadu, India. Page 1
 8. Gifts to constitute income: - Any amount of gift received from a person other than relative shall be
deemed as income from other sources if it exceeds Rs.50000.

Heads of income: -
As per Section 14 of the Income Tax Act, 1961

1. Income from salaries

2. Income from house property
3. Profits from house property
4. Capital gains
5. Income from other sources

Assessee: - 1. Individuals
2. Hindu undivided families
3. Firms and association of person
4. Companies
5. Other assessee

Define person? Sec 2(31)

The term ‘person’ includes:
1. Individuals: - Natural human beings like male or female married or single, minor or major, sane or
insane etc.
2. A Hindu undivided family: - consisting of all persons lineally descended from a common ancestor and
includes their wives and unmarried daughters.
3. A company: - Indian or foreign company.
4. A firm
5. An association of persons or body of individuals
6. A local authority: - municipality, Panchayath, district board etc.
7. Artificial juridical persons: - statutory corporation, universities, Hindu Deities etc.

Mr. Jayashankar . J
B.Com (Taxation Laws & Accounts), M.Com(Finance), MBA(Marketing and Finance), MA(Public Administration),
UGC – NET (COMMERCE). Income Tax Practitioner(Govt. of India). GST Practitioner(Govt. of India).
Assistant Professor
Chettinad School of Law
Chettinad Academy of Research and Education(Deemed to be University),
Chennai, Tamil Nadu, India. Page 2
 Who is assessee? Sec 2(7)

An assessee means a person by whom any tax or any other sum of money is payable under the Act and
includes: -
1. Every person in respect of whom any proceeding under this Act has been taken for the assessment of his
income or of any other person in respect of which he is assessable.
2. Every person who is deemed to be an assessee under any provisions of the Act like legal representative
etc.
3. Every person who is deemed to be an assessee-in –default under any provisions of the Act.

Who is deemed assessee?

A person who is bound to pay tax in respect of income of another person is known as deemed assessee.
For example: - tax on the income of a minor is payable by the guardian, tax on the income of a deceased
person is payable by the legal representative.

Who is an assessee–in-default?
When person fails to comply with the provisions of the income tax Act, he becomes an assessee-in-
default. For example: -if a person who is boun to deduct tax at a source and remit the same to the
Government, fails to do so, he is called an assessee in default.

What is assessment year? Sec 2(9)

Assessment year means the period of one year commencing from April 1 very year. It is the subsequent
year of the previous year. It is the year in which tax is payable on the income earned during the previous
year at the rates prevailing in the assessment year. The relevant assessment year is 2024-2025.

What is previous year? Sec 3

Previous year means the year immediately preceding the assessment year. It is the year in which income
is earned b an assessee. Usually this is a period of one year commencing from 1 April. Where a business
or profession is newly set up or a source of income is newly coming into existence, the previous year
shall be the period beginning from the time of such commencement and ending on the immediately
following March 31 st. This uniform previous year is followed by all assesses and applicable for all
sources of income 2023-2024.

Mr. Jayashankar . J
B.Com (Taxation Laws & Accounts), M.Com(Finance), MBA(Marketing and Finance), MA(Public Administration),
UGC – NET (COMMERCE). Income Tax Practitioner(Govt. of India). GST Practitioner(Govt. of India).
Assistant Professor
Chettinad School of Law
Chettinad Academy of Research and Education(Deemed to be University),
Chennai, Tamil Nadu, India. Page 3
 Exception to the general rule of previous year: -
In the following cases the income of the previous year is taxable in the previous year itself:
1. Income of a non-resident from shipping business is taxable in the same year itself.
2. Income of a person leaving India either for a long period or without an intention to come back. The total
income of such individual up to the probable date of departure shall be charged to tax in the same
previous year.
3. Transfer of property to avoid tax-if the Assessing Officer (AO) has sufficient reasons to believe that the
assessee is likely to transfer his property to avoid tax, the AO shall charge tax on such income in the
previous year itself.
4. Discontinuance of a business or profession during the course of the year, the AO may tax the income
from April 1 to the date of discontinuance, in the previous year itself.
5. Bodies formed for short duration-if an AOP, BOI or AJP is formed for a particular event, its income is
taxable in the previous year itself.

Residential Status and Incidence of Tax (Sec 6)

The incidence of tax of any assessee depends upon his residential status during the previous year. So the
determination of residential status is very important in determining the tax liability of an assessee. For
example: -resident assessee has the highest tax liability in India because the global income of such an
assessee is taxable in India. But non-resident assesse has the lowest tax liability because no foreign
income of such an assessee is taxable in India. Determination of residential status has nothing to do with
the citizenship of an assessee. The status of an assessee may be Resident, Not ordinary Resident and
Non Resident. Determination of the status for various assessee is as follows.

Residential status of an individual

The residential status of an individual assessee is determined on the basis of the following condition: -

Basic condition:-

1. The assessee is in India for 182 days or more in the previous year.
2. The assessee has been in India for 60 days or more in the previous year and 365 days or more in 4 years
preceding the previous year.
In the cases of an individual who leaves India in any previous year as a member of the crew of an Indian
ship or for the purpose of employment and in the case of person of India origin comes to India for a visit
during the previous year, the period of 60 days in the above case will be substituted by 182 days.

Mr. Jayashankar . J
B.Com (Taxation Laws & Accounts), M.Com(Finance), MBA(Marketing and Finance), MA(Public Administration),
UGC – NET (COMMERCE). Income Tax Practitioner(Govt. of India). GST Practitioner(Govt. of India).
Assistant Professor
Chettinad School of Law
Chettinad Academy of Research and Education(Deemed to be University),
Chennai, Tamil Nadu, India. Page 4
 Additional conditions:-

1. The assessee has been resident in India for at least 2 years in 10 years preceding the previous year.
2. The assessee has been in India for a period of 730 days or more in 7 years preceding the previous year.
Resident and ordinarily resident:Sec 6(1) - An assessee satisfying any one of the basic conditions and
both the additional conditions is called resident and ordinary resident.
Not ordinary resident: -An assessee satisfying any one of the basic conditions and any one or none of
the additional conditions is called not ordinary resident.
Non Resident: - An assessee satisfying none of the basic conditions is known as Non Resident.

Hindu Undivided Families

Resident: - HUF is treated as Resident during the previous year if the following three conditions are
satisfied.
1. The de facto management and control of its affairs are situated in India in the previous year either
partially or totally.
2. The karta has been resident in India for 2 years out of 10 years preceding the previous year.
3. The karta has been in India for a period of 730 days or more in 7 years preceding the previous year.
Not Ordinarily Resident: -HUF is not ordinarily resident in India if control and management of its
affairs is situated in India in the previous year at least in part but karta does not satisfy both the
additional conditions.
Non Resident: -HUF is treated as Non Resident if its complete de facto management and control are
situated outside India during the previous year.
If the HUF does not satisfy the 1 st condition or the basic condition, HUF can be treated as Non Resident.

Firms, AOPs and BOIs

Residential status of affirm, AOP or BOI may be either resident or Non Resident. Such an assessee is
treated as resident if its management and control during the previous is situated in India either partially
or totally. If it’s complete management and control is situated outside India. It is called Non Resident.

Mr. Jayashankar . J
B.Com (Taxation Laws & Accounts), M.Com(Finance), MBA(Marketing and Finance), MA(Public Administration),
UGC – NET (COMMERCE). Income Tax Practitioner(Govt. of India). GST Practitioner(Govt. of India).
Assistant Professor
Chettinad School of Law
Chettinad Academy of Research and Education(Deemed to be University),
Chennai, Tamil Nadu, India. Page 5
 Joint Stock Companies
The residential status of a company may be either Resident or Non Resident. A company is treated as
resident in India, if: -
1. It is an Indian Company. Indian Company means a Company formed and registered under the provisions
of Companies Act 2013. The place of business is immaterial.
2. A foreign company whose complete management and control of affairs was situated in India in the
previous year.
All other companies are Non Resident.
Other Assesses
The residential status of other assessee may be either Resident or Non Resident. Other assessee is
resident if its management and control was situated in India either partially or totally, in the previous
year. It is considered to be Non Resident if its complete management and control is situated outside
India in the previous year.

Residential Status and Incidence of Tax

Not
Resident ordinarily Non resident
resident
1. Income received in India or
deemed to be received in India. Taxable Taxable Taxable

2. Income accrue or arise in

India or deemed to accrue or
Taxable Taxable Taxable
arise in India.

3.foreign income
a. From business or profession
controlled from India Taxable Taxable Not Taxable

b. Other foreign income Taxable Not taxable Not Taxable

Mr. Jayashankar . J
B.Com (Taxation Laws & Accounts), M.Com(Finance), MBA(Marketing and Finance), MA(Public Administration),
UGC – NET (COMMERCE). Income Tax Practitioner(Govt. of India). GST Practitioner(Govt. of India).
Assistant Professor
Chettinad School of Law
Chettinad Academy of Research and Education(Deemed to be University),
Chennai, Tamil Nadu, India. Page 6