Income Tax - Law &

Practice - I

Ms. Eswari, Lecturer

KCC – Kodaikanal – 624 104.
 Income Tax - Law &
Practice - I
Unit – I Income Tax Act, 1961
Unit – II Exempted Incomes
Unit – III Computation of Taxable Income
Unit – IV Profits and Gains
Unit – V Capital Gains
 Unit – 1
HISTORY OF INCOME TAX IN INDIA
1. Income – tax Act of 1961:

on the basis of the

recommendations made by the
various committees, a new Act of
Income-tax had been passed during
the year 1961 termed as the “Income -
Tax Act, 1961”. This Act came into
force from 1st April, 1962. This Act
contains more than 400 sections and a
number of sub-sections and 10
schedules. The Income – Tax
department framed 121 rules for the
effective application of this Act. These
rules are termed as “Income - Tax
Rules of 1962”. It also includes a
number of sub - rules.
 BASIC CONCEPTS – DEFINITIONS

1. Assessee – section 2(7)

2. Assessment – section 2 (8)
3. Assessment year – section 2(9)
4. Person – section 2(31)
5. Previous year – section 3
6. Principal officer
7. Relative
8. Casual Income – section 10(3)
9. Gross Total Income – section 14
10. Total Income – section 2(45)
11. Income
12. Dividend Income – section – 8
13. Deemed Income
14. Average Rate of Income Tax – Section 2(10)
15. Charitable purpose – section 2(15)
 CAPITAL AND REVENUE
Capital Receipts:
Receipts from fixed capital
Ex: Receipt from plant
and machinery
Revenue Receipts:
Receipts from circulating capital

1. Difference between capital and

revenue receipts
2. Difference between capital and
revenue expenditure
RESIDENTIAL STATUS (SECTION – 6)

Residential Status
Resident Non-Resident

Ordinarily Resident Not- ordinarily Resident

 1 .Individuals
If an individual who satisfies understated both the
conditions of section 6 of the Income-tax Act, then he
becomes a non-resident.

Condition Status1.
He is not in India for 182 days or more
during the relevant previous year. If yes, then he is a
non-resident. (so check the next condition.)2. He is not
in India for 60 days or more during the previous year and
he is not in India for 365 days or more during the 4 years
prior to the previous year. If yes, then he is a non-
resident.

If you are not satisfying any of the above conditions

to become non-resident, check whether following assists
you to become a non-resident.
In the case of an individual on visit to India or a
member of the crew of an Indian ship or a person leaving
India for employment outside India, the requirement of
stay in India of 60 days in condition 2 above is extended
to 182 days.
 Cont…
Resident but not ordinarily Resident (RNOR)

A NRI who has returned to India for good is

covered under the provisions of section 6(6) of the
Income-tax Act. He is given a special status of Resident
but not ordinarily Resident (RNOR) if he satisfies one of
the following conditions:

• Condition Status1.He is not a resident, as per the above

provisions, for at least 9 out of 10 previous years prior to
the previous year under consideration. If yes, he is
RNOR2. His stay in India during the 7 previous year prior
to the previous year under consideration should not be
730 days or more. If yes, he is RNOR

• Note : An individual who is non-resident for 2

consecutive years, shall remain RNOR for 9 subsequent
years and as such his foreign income is not taxable in
India while his status RNOR. The status of RNOR
renders certain income of such individual non-taxable.
2. Hindu Undivided Family
As per section 6(2), a Hindu
undivided family (like an individual) is
either resident in India or non-resident
in India. A resident Hindu undivided
family is either ordinarily resident or
not ordinarily resident.

A Hindu undivided family is said to

be resident in India if control and
management of its affairs is wholly or
partly situated in India. A Hindu
undivided family is non-resident in
India if control and management of its
affairs is wholly situated outside India.
 3. Firms, Association Of
Persons
As per section 6(2), a partnership firm and
an association of persons are said to be
resident in India if control and management of
their affairs are wholly or partly situated within
India during the relevant previous year. They
are, however, treated as non-resident in India if
control and management of their affairs are
situated holly outside India.

Companies
As per section 6(3), an Indian company is
always resident in India. A foreign company is
resident in India only if, during the previous
year, control and management of its affairs is
situated wholly in India. However, a foreign
company is treated as non-resident if, during
the previous year, control and management of
its affairs is either wholly or partly situated out
of India.
 SCOPE OF TOTAL INCOME OR
INCIDENCE OF TAX – (SECTION – 5)
Incidence of tax
• Untaxed foreign Income
of past years
• Receipt of income
• Remittance
• Accrual of income
• Arisal of income
• Deemed income
 Assignment topics:
1. History of Income Tax In India
2. Difference between capital receipts and
revenue receipt
3. provisions for find out residential of an
Individual
4. scope of Income Tax
5. Definition of assessee, previous year,
assessment year, deemed Income, Income,
person, etc.,
Further Readings:

1. Students Guides to Income Tax - Vinod K. Singhania

2. Income Tax – Theory, Law & Practice - Ts. Reddy & Y. Hari
Prasad Reddy
3. Income Tax Law & Practices - H.C. Mehrotra
4. Income Tax Law and Practices - V.P. Gaur & D.B.Narang
5. Income Tax Law and Practice - Bhagavathi Prasad
 Unit - II
INCOME EXEMPT FROM TAX (SECTION – 10)
1. Agricultural income sec 2(1A)
2. Sum received by a member from HUF
3. Tax-free income under the head
salary
4. Exempted to former ruler: sec – 10
(19A)
5. Awards: sec – 10(17A)
6. Income of local authority: Sec –
10(20)
7. Any sum received under a life
insurance policy
8. Income of any regimental fund of the
armed forces
9. Income of certain national funds; sec
– 10(23-c)
10. Income of mutual funds
Cont..,
10. Income of Registered Trade union –
section 10(24)
11. Income of provident funds: sec – 10(25)
13. Relief to foreign Govt. Employees
14. Relief to foreign companies
15. Incomes of non-residents
16. Interest on certain securities: sec-10(15)
17. Share of profit from partnership firm
18. Income of SAARC fund
19. Capital gain on transfer of US 64 units
of the UTI
20. Exemption to political parties – section
13A
21. Etc.,
 Assignment Topics
• Write any 15 Exempted Incomes
Further Readings
1. Students Guides to Income Tax - Vinod K. Singhania
2. Income Tax – Theory, Law & Practice - Ts. Reddy & Y. Hari
Prasad Reddy
3. Income Tax Law & Practices - H.C. Mehrotra
4. Income Tax Law and Practices - V.P. Gaur & D.B.Narang
5. Income Tax Law and Practice - Bhagavathi Prasad
 Unit - III
HEADS OF INCOME

1. Income under Head Salaries

2. Income from House Property
3. Income from Profits and Gains
of Business or Profession
4. Income from Capital Gains
5. Income from other Sources
 INCOME FROM SALARY (SEC-
17)
1. Basic Salary Etc.
2. Allowances
2.1. Full exempted allowances
2.2. partly exempted
allowances
1. Special allowances
2. House rent allowance
3. Entertainment allowance
2.3 fully taxable allowances
Cont..,
3. Provident funds
• Statutory provident fund
• Recognised provident fund
• Unrecognised provident fund
• Public provident fund
• Approved super annuation fund
4. Perquisites
• Perquisites taxable in all cases
• Fully exemptes perquisites
• Perquisites taxable in specified cases only
5. Retirement benefits
• Pension
• Gratuity
• Leave salary encashed at the time of
retirement
6. Profit in lieu of salary
INCOME FROM HOUSE PROPERTY
(SEC 22 TO 27)

1. Annual value
2. Let-out house properties
3. Self- occupies house properties
4. Partly let-out and partly self –
occupies house properties
5. Deductions under section 24
 Assignment Topics
1. Write any 10 Fully Exempted allowance
2. Write any 10 Partly exempted allowance
3. Write any 15 tax free perquisities
4. Types of provident fund
5. Write the provision for retirement benefits
 Further Readings

• Students Guides to Income Tax - Vinod K.

Singhania
• Income Tax – Theory, Law & Practice - Ts. Reddy
& Y. Hari Prasad Reddy
• Income Tax Law & Practices - H.C. Mehrotra
• Income Tax Law and Practices - V.P. Gaur &
D.B.Narang
• Income Tax Law and Practice - Bhagavathi Prasad
 Unit - IV
PROFITS AND GAINS OF BUSINESS OR
PROFESSION

Business
According to Sec.2(13), the term
‘Business’ includes, “any trade, commerce
or manufacture or adventure in the nature
of trade, commerce or manufacture”.

Profession
According to Sec. 2(36), “ profession”
includes vocation, it is an occupation
tequiring purely intellectual skill or manual
skill controlled by the intellectual skill of
the operator e.g. Lawyer, Doctor, Engineer,
etc.
 Vocation

It is only a way of living for

which one has special fitness it does
not involve any organised or
systematic activity like business

• Computation of profit and gains

 Admissible or allowable
expenses sec 30 – 37
1. Scientific research expenditure
2. Expenditure on acquisition of
copy rights
3. Payment to rural development
4. Payment made for the
conservation of natural resources
5. Expenditure on prospecting of
certain minerals
6. Etc.,
• Deductions allowed
 Assignment Topics
1. Definition of business, Profession and
Vocation
2. Write any 10 admissible Expenses
3. Deductions allowed for business and
profession
 Further Readings

• Students Guides to Income Tax - Vinod K.

Singhania
• Income Tax – Theory, Law & Practice - Ts. Reddy
& Y. Hari Prasad Reddy
• Income Tax Law & Practices - H.C. Mehrotra
• Income Tax Law and Practices - V.P. Gaur &
D.B.Narang
• Income Tax Law and Practice - Bhagavathi Prasad
 Unit - V
CAPITAL GAINS
1. Meaning
Any income derived from the
transfer of capital assets is known
as “Capital gain”

2. Capital Asset
u/s 2(14). Capital asset means
any property held by an assessee.

3. Transfer
u/s 2(47). Transfer means sales,
Exchange, Relinquishment of an
asset etc.,
Cont..,
4. Short term capital gain
A capital gain resulting from the transfer of a
capital asset within 36 months from the date of
its acquisition is known as ‘short term capital
gain’

5. Long term capital gain

The gain resulting from the transfer of a
capital asset after the expirty of 36 months from
the date of its acquisition is known as long term
capital gain

6. Cost of acquisition
7. CII
8. Cost of improvement
9. Exemptions under section 54
 INCOME FROM OTHER SOURCES

It is the residuary head of income. Under this head,

income of every kind which is not charged to tax under
any of the other four heads are chargeable to tax.

1. Examples of income from other sources

• Dividends (Exempted u/s 10)
• Winning from lotteries, crossword puzzles,
races
• Annuities granted under a will
2. Gross interest
3. Grossing up of interest
4. Deduction of tax at source sec 193 and 194
5. Deductions allowed sec – 57
6. Deductions disallowed sec – 58
7. Kinds of securities
8. Bond washing transactions
9. Exempted persons sec - 10
 Assignment Topics
1. Write any 15 examples of income from
other sources
2. Meaning of capital gain, capital asset,
short term capital gain, long term capital
gain, cost of acquisition etc.,
3. Exemption under section 54
4. Types of securities
5. Tds Rates
 Further Readings

• Students Guides to Income Tax - Vinod K.

Singhania
• Income Tax – Theory, Law & Practice - Ts. Reddy
& Y. Hari Prasad Reddy
• Income Tax Law & Practices - H.C. Mehrotra
• Income Tax Law and Practices - V.P. Gaur &
D.B.Narang
• Income Tax Law and Practice - Bhagavathi Prasad