BASIC
CONCEPTS
Module 1
WHAT IS TAX?
Tax is compulsory contribution to state revenue, levied by the government
on worker’s income and business profits, or added to the cost of some
goods, services, and transactions. It may be direct or indirect tax
Direct tax is a tax, such as income tax, which is levied on the income or
profits of the person who pays it, rather than on goods or services
Indirect tax is levied on goods and services rather than on income or profits
INTRODUCTION
The present law of Income Tax is contained in the Income Tax Act, 1961.
the Income Tax Act contains the provisions for determination of taxable
income, determination of tax liability, procedure for assessment, appeal,
penalties and prosecutions. It also lays down the powers and duties of
various income tax authorities
The income tax law comprises the Income Tax Act 1961, notifications and
circulars issued by Central Board of Direct Taxes (CBDT), annual finance
acts and judicial pronouncements by Supreme Court and High Courts
TYPES OF TAXES
ASSESSMENT YEAR – SEC
2(9)
“Assessment Year” means the period of twelve months commencing on 1 st
April every year and ending 31st March of the next year. Income of previous
year of an assessee is taxed during the following assessment year at the
rates prescribed by the relevant Finance Act
Present AY is 2025-26
PREVIOUS YEAR – SEC 3
Income earned in a year is taxable in the next year. The year in which
income is earned is known as previous year. From the assessment year
1989-90 onwards, all assessee are required to follow financial year as
previous year.
The uniform previous year has to be followed for all sources of income
The present PY is 2024-25
PERSON - SEC 2(31)
Person includes;
An individual
A Hindu Undivided Family
A company
A firm
An association of persons or a body of individuals whether incorporated or
not
A local authority
Every artificial person, juridical person, not falling within any of the above
categories
ASSESSEE – SEC 2(7)
Assessee means a person by whom any tax or any other sum of money is
payable under the Act
INCOME - SEC 2(24)
Income includes;
Profits or gains of business or profession
Dividend
Voluntary contribution received by a charitable/ religious trust/ university/
education institution/ hospital
Value of perquisite or profit in lieu of salary
Export incentives
Interest, salary, bonus, commission, or remuneration earned by a partner
of a firm
Capital gains chargeable etc..
GROSS TOTAL INCOME - SEC
14
As per section 14, income of a person is computed under the following
heads;
1. Salary
2. Income from house properties
3. Profits and gains of business or profession
4. Capital gains
5. Income from other sources
The aggregate income under these heads is termed as “Gross Total Income”
TOTAL INCOME – SEC 2(45)
Total income means the total amount of income referred to in section 5,
computed in the manner laid down in the Act
In other words, it is the income after allowing the deductions u/s 80C to
80U
TAX PLANNING
Tax planning is the process of analysing a financial plan or a situation from
a tax perspective
The objective of tax planning is to make sure there is tax efficiency
Tax planning can be classified into three categories;
Permissive tax planning – falls under the framework of law
Purposive tax planning – with a specific objective
Long/short range tax planning – executed at the beginning and towards the
end of fiscal year
TAX EVASION
Tax evasion is an illegal activity in which a person or entity deliberately
avoid paying a true tax liability
It can be either the illegal non-payment or under payment of actual tax
liabilities due
To determine tax evasion, the agency must be able to show that the
avoidance of taxes was will full on the part of the tax payer
EXEMPTED INCOMES U/S 10
Agricultural income – Sec 10(1)
Amount received by an individual through a coparcener from an HUF
– Sec 10 (2)
Income received by partners of a firm – Sec 10 (2A)
Leave travel concession – Sec 10 (5)
Allowances received by government employees stationed abroad –
Sec 10 (7)
Gratuity – Sec 10 (10)
Any payment received via the Statutory Provident Fund – Sec 10 (11)
House rent allowance – Sec 10(13A)
RESIDENTIAL STATUS
Tax incidence on an assessee depends on residential status
Types of residential status;
Ordinarily Resident in India (satisfies any one of the basic
condition and all the two additional conditions)
Not-Ordinarily Resident in India (satisfies any one of the
basic condition and does not satisfy both the additional
conditions)
Non-Resident (Does not satisfy any one of the two basic
conditions)
CONDITIONS TO DETERMINE
RESIDENTIAL STATUS
Basic conditions
1. Should be in India for a period of 182 days or more during the relevant
previous year
2. Should be in India for a period of 60 days or more during the relevant
previous year and 365 days or more during four previous years
immediately preceding relevant previous year
Additional conditions
3. Should be resident in atleast 2 PYs out of 10 PYs immediately
preceding relevant previous year
4. Should be in India for 730 days or more during 7 PYs immediately
preceding relevant previous year
EXCEPTIONS TO 1 ST
BASIC
CONDITIONS
1. Indian citizen
Who comes on a visit to India during relevant PY; or
Who is crew member of an Indian ship; or
Who goes abroad for employment purposes
2. Person of Indian origin who comes on a visit to India during relevant PY
