Sec 2 (1A) of income tax 1961 act agriculture income means
1) Any rent or revenue derived from the land which is situated in India and used for agriculture activities. 2) Any income derived from such land by the agriculture person or by the process employed to make agriculture produce which can be fit for sale in the market. 3) Or any other income derived from any building provided that the: a) Building is on or on the immediate next to the agriculture land. b) It is occupied by cultivator or receiver of rent of revenue. c) It is used as dwelling place or share house or out house. d) Or land taken as rental income source
Any agriculture land which is situated out of India and a person is getting income from that land then it is not agriculture income. It is not called agriculture income under income tax act 1961 but will be chargeable from income or profession or business. Assesses
Section 2 (7) of IT of India 1961 provided expenditure about assesses which means: a) Every person in respect of whom income tax proceeding are performed. b) A person who is default under any income tax provision Person _ the person is explained by Indian income tax act 1961 which includes 1) A individual
2) A Hindu undivided family
3) A company
4) A firm
5) An association of person or body or individuals
6) Local authority
7) Every artificial judicial person
Individual means a natural person includes male or female major minor as well as lunatic person. Their incomes are filed separately but at the same time the income of minor and united person is always with legal guardian HUF (hindu united family). It’s a family joint venture performed by lineate ascendance or desendence where the main person is called as KARTA and they will file their own income tax return for the income tax purposes not only religion of Hindus are included but also Jain and Sikh communities are also included. Company
Company is defined under companies act 1956 and this company will file income tax return where this company can be 100% Indian company. Company established by central government or state government or any other foreign company having its location in India as branch or a subsidiary. Firm
Means a partnership firm established under partnership act 1932 AOP (association of person)
AOP are nothing but two or more person coming together for any join activity or common purpose of earning profit and they need not continue this activity over the long period of time. Body of Individuals
The Body of Individual is different from AOP because it includes only individuals who are coming together for particular common goal or operation of earning money. Local Authority
Local authority means Municipal Corporation or district board interested by Government. Artificial juridical person
It means a legal person which can be a company or a charitable organization or any university or any religious trust. Assessment Year
Section 2 (9), it means the total period of 12 months commencing from 1st April to 31st march of next year the tax has to be paid in accordance with this assessment year for the related previous year. Previous Year
Total period of 12 months commencing on 1st April of particular year upto 31st march of next year the tax for previous year is always calculated as per assessment year.
Capital and Revenue Receipt
The income tax department does not make big difference between capital and revenue receipt but at the same time these receipt have different meaning. The receipt which occurs only some times over the period of time is called as capital receipt Ex: a sale of any investment or any land by any proportion 1 or 2 times over the period of time and revenue receipt which occurs each and every time on the day to day basis. Ex: Rent, interest, dividend, commission received etc. Following is the difference between capital and revenue.
1. Fixed and Circulating Capital – Any kind of assets purchased for business purpose is Fixed Asset or Fixed Capital. Bur if a particular person has a business of purchasing and selling fixed assets than it is revenue asset for him. 2. Application of Law – There is no specific rule regarding capital receipt or revenue receipt under companies act 1956. 3. Source of Income – If any company is in loss or has to pay large amount of dues they can sale their assets (fixed assets) to compensate their loss which will happen once a while, so it is called as a source of income to compensate any loss. While in other case purchasing or selling of an asset is going on as a business activity then it is regular income not source of income. 4. Sale of Shares – In case of sales of shares also it can be capital gain or revenue receipt. Ex: When any person purchases and sales the shares on daily basis without any investment for shorter duration or longer duration then it is called as speculation business and it will be revenue receipt for him but in other case if a person makes the investment for shorter or longer duration and after a particular duration he sales of his investment than it is Capital Receipt. Revenue Receipt Gain
In case of any trading activity that is import or export foreign exchange is used and while making settlement of any claim foreign exchange gain or loss occurs which will be treated as revenue receipt but at the same time any kind of investment is made in foreign market and sold after longer duration it will be a capital receipt. Capital Expenditure and Revenue Expenditure
Expenditure maid on installation of any fixed assets or investment it will be treated as capital expenditure because expenditure will always help organization to make proper use of fixed assets & investment while revenue expenditure is nothing but expenditure maid to make continues use of fixed assets like repairs and maintenance. For Ex: Machinery cost: 2, 00,000 + installation charges: 25,000 = 2, 25,000 (Capital Exp) After few years: Repairing & Maintenance = 25000 (Revenue Exp)
Capital Expenditure| Revenue Expenditure|
Capital expenditure includes all installation charges as well as cost equal related to fixed assets.| Purchase of goods for consumption on daily basis or for resale purpose will be a part of revenue expenditure.| Expenditure made foe increasing the capacity of business that is improving fixed assets condition is a capital expenditure.| Any expenditure made for just maintenance of fixed assets is revenue expenditure.| An expenditure which earned by a person to discharge its liability will be called as capital expenditure.| Expenditure inqured by person to discharge from revenue liability will be called as revenue expenditure.| Any expenditure done of acquiring any business will be a capital expenditure.| Any expenditure is maid for just earning income will be revenue expenditure.| Any expenditure is done for obtaining capital by way of issue of shares will be a capital expenditure.| Any Expenditure may to raise loans or borrowed from will be revenue expenditure.|
Section 5of income tax act explain about total income and payment of tax will depend upon residential status. The residential status in determined with previous year and it is classified as follows:
For the same person rules are divided into 4 groups that is individual, HUF, Company, Firm associations of persons and body of individuals. Section 6 (1) gives following rules:-
Residential and Ordinary Residential
Here the individual is said to be resident and ordinary, if he satisfies one of the basic conditions, which are as follows: If he is in INDIA for the period of 182 days and more of the relevant previous year or he is in India for 60 days or more in the relevant previous year and he has been in India for 365 days or more for 4 immediately relevant previous years. Additional Conditions:
He has resident for atleast 2 years out of 10 previous years immediately proceeding relevant previous year and he has been in INDIA for atleast 730 days in total for last 7 years proceeding relevant previous year. For these conditions there are some expectations:
1. The people who of Indian citizen live India for employment than condition (2) which mentions about 60 days will be substitute as 182 days. 2. It also mentions that a person who is of Indian origin or citizen of India who is outside India and then visiting India for the 1st time than condition 2 of 60 days will be replaced by 182 days.
Residential and Non Ordinary Residential
An individual said to be resident and non ordinary resident if they satisfy basic condition (Any one) but does not satisfy any or both additional conditions for atleast 2 years out of last 10 years and he is not in India for 730 days or more in last 7 years. Non Resident
An individual is said to be non-resident if they does not satisfy the basic condition and the conditions which are additional becomes irrelevant. For these non-resident income taxes have different provision * Double taxation relief
* International taxation is computed under arms length price.
Q.1 Mr. A foreign cricketer and comes India for 100 days every year from 2000-2001. Find his residential status for the assessment year 2012-13.
Sol- According to condition Mr. A is living in India for 60 days and 365 days in 4 year. So he is a resident individual.
Q.2 Mr. B after 30 years stays in India return to England on 29th Jan 2009. He returns in India again in June 2011. Determine his residential status for 2012-13
Sol- He satisfy all the basic conditions and satisfy all the additional condition so he is a resident of India and also a ordinary resident of India.
Residential status for HUF (Hindu Undivided Family)
HUF said to be resident in India if it controlled and management is situated in full or partial India.
HUF will be 100% resident if its KARTA complies with following additional conditions : –
Atleast 2 years out of 10 relevant previous years.
730 days out of 7 relevant previous years.
HUF will be resident but Non ordinary resident if the manager or KARTA of HUF will be non-resident if control and management is out of India or most of the part controlled out of India.
Residential Status for Firm AOB-BOI
A Firm AOB-BOI can be a resident or ordinary resident if they are controlled and managed wholly or partial in India in case of Firm if the management and control from India than it is resident or ordinary resident.
A Firm AOB-BOI never becomes non ordinary resident.
A Firm said to be Non-resident just like AOB-BOI control and management is done out of India most of the time.
Residential status of Company
A Company can be resident or ordinary if its an Indian company or it is managed or controlled in India.
A company is never non ordinary resident.
A company will be non-resident when its not Indian company or control and managed by most of the time out the India.
Pan is nothing but permanent a/c no. which is given to every tax payer after providing identifies proof and address proof. This PAN no. is very important while filing income tax return without the same income tax return is not allowed to be filled by the income tax authority.
Artificial Juridical Person
Company is called as Artificial Juridical Person because company has its own name, own identity and own symbol. Company is different from their Directors. It means thou there is lack of directors in company, Company can continue its business with the help of other management and at the same time
can buy or sale the share on its own.
1. Agriculture Income
Agriculture income means income generated from agriculture in India. It is a exempted income tax. 2. Receipt from HUF
Any amount received by member of HUF from HUF is this activity will be exempted.
3. Share of a profit in partnership Firm
Any sum received by partner from partnership firm is exempted by taxation. 4. Remuneration from person who receives royalty or technical fees from foreign company will be exempted in tax, as tax is already paid in the foreign country. 5. Payment from recognized provident fund which is to be paid to an employed will be exempted. 6. House Rent Allowed
It is an allowance given by employee to employee with free accommodation which is tax free 7. Education Scholarship
Expense grated to meet cause of education will be exempted, irrespective of weather it is government scholarship or any other scholarship. 8. Award or Reward
Any income received in cash or kind by way of any award or reward recognized by central or state government or any other such body will be treated as tax free. 9. Income from professional association or institution will be exempted for tax which is non income of House property or any other service. 10. In case of local authority income from house property or other source or water or electricity Supply will be treated as tax free.
Income from Salary
TDS (Tax deduction source)
Under section 15 foreign incomes are taxable under head income from salary.
Any salary due from employer or formal employer during previous year which is paid or payable.
Any assess of salary whether paid or payable.
To become income from salary for any receipt there should be employer employed relationship should exist otherwise it will be not as called as income from salary.
This salary is divided into various parts:-
Basic part: it is a paid to law of employee.
Pension: It is a amount receivable after completion of service.
It is a retire benefit given to employee or employer for the reorganization service rendered by him. 1. In case of government employee their gravity is tax free whether it is central government, state government or any local authority. 2. In case of employee covered under payment of gratuity act 1992 out of the following least is exempted.
15 days X completed years of service
Rs. 10 lakh
Gratuity actually received
For other employees the conditions are as follow:-
Half month salary for completed years of service or gratuity actually received. Pension
1. Government Employees
Any commeted pension received by government employee of central government or state government or local authority is exempted from tax. 2. Non-Government Employee
A payment in relation to pension will be exempted in case of 1/3 pension received when pension already received gratuity.
And if he is not is receipt of 1/3 gratuity then 1 ⅟ is exempted.
It is a compensative recrud by work men at the time of retirement and list of following are exempted
Amount received as 15 days salary for every completed year or for year when he work for more than 6 months and under industrial
Or Rs. 5, 00,000 /-
Or actually amount received
Voluntary Retirement Scheme
Any compensation received by employer of central and state government or local authority university, IITs, IIMs , the list of following id exempted – 1. Rs. 5 ,00,000
2. Or 3 months’ salary & no. of years of completed or 3. Salary X by no. of months service in land.
Here the salary means basic salary + allowance + Commission received.
Provisions: list of following –
1) 15 days salary X no. of years of service
2) Rs. 10 lakh
3) Gratuity actually received
Pension (Non Government employees)
1) ⅓ Payment received when person already record gratuity. 2) Gratuity non recognized then half is exempted.
1) 15 days salary X no. of years of service or for a year when he books for more than 6 months under industrial dispute act 1947 2) Rs. 5, 00,000
3) Actually amount received
VRS (Voluntary retirement scheme)