INCOME TAX ACT 1961

INCOME TAX ACT 1961

1. Direct ( a. Income tax , b. Corporate tax)

2. Indirect  (G.S.T. July 2017)  
               

Meaning: Income tax is an important direct tax. It is a prominent and most significant source of revenue of the government. The government needs money to maintain law and order in the country; safeguard the security of the country from foreign powers and promote the welfare of the people. 

Every person, whose taxable income for the previous financial year exceeds the minimum taxable limit is liable to pay income tax during the current financial year on the income of the previous financial year at the rates applicable during the current financial year. 

 In India this tax was introduced for the first time in 1860, by Sir James Wilson in order to meet the losses sustained by the government on account of the Military Mutiny of 1857.

The Income Tax Act 1961.

(1) Tax-Exempted limit :-

    If income tax exceeds tax-exempted limits of income, then tax is imposed.

   Tax-exempted limit of income for the assessment year 2019-20 are as follows:

(a) Senior Citizen:- Age of 60 years or more but less than 80 years, Rs. 3,00,000.
(b) Super Senior Citizen:- Age of 80 years or more, Rs. 5,00,000.
(c) Other Individuals:- H.U.F, Association of persons, Body of individual Rs. 2,50,000.

(2) Surcharge:-
 Surcharge is imposed on the amount of income tax. Surcharge rates are as follow for the Assessment Year 2019-20.

(i) For Individuals, H.U.F, A.O.P or B.O.I: @ 10% if total income exceeds 50 lakh rupees but does not exceeds 1 crore rupees. @ 15% if total income exceeds 1 crore rupees.
(ii) For Firms: @12% if total income exceeds 1 crore rupees.
(iii) For Domestic Company: @ 7% if total income exceeds 1 crore rupees but does not exceed 10 crore rupees. @ 12% if total income exceeds 10 crore rupees.

 NOTE: in above all three conditions, provision of marginal relief will also be applicable.

(3) Health and Education Cess : 
All assessees are liable to pay health and education cess @ 4% on the total amount of income tax including surcharge. 

 BASIS AND PROCEDURE OF CHARGING OF INCOME TAX (Sec. 4)
The following basic principles are the basis of charging income tax: 
(1) Income tax is an annual tax on income.
(2) Income of the previous year is taxable in the next following the assessment year at the rate or rates applicable to that the assessment year. However, there are certain exception to this rule.
(3) Tax rates are fixed by the annual Finance Act.
(4) Tax is charge on every person as defined in section 2(31).
(5) The tax is charged on the total income of every person computed in accordance of this Act.
(6) Income tax is to be conducted at the source of income or paid in advance as provided under provisions of the Act.

The total income is computed on the basis of the residential status of the assessee. The income is classified into the following 
 Five heads:-
(1) Income from Salaries; (Sec.15 to 17)
(2) Income from House Property; (Sec.22 to 27)
(3) Profits of Business or Profession; (Sec. 28 to 44)
(4) Capital Gains;(Sec. 45 to 55) &
(5) Income from Other Sources (Sec. 56 to 59).

For computing, the total income of an assessee and the tax payable by him, following the procedure is followed:
(1) Classify the total income under each of the five heads and then deduct from the income under each head the deductions permissible under the Act in respect of that head of income. The balance of amount left under each head of income is its assessable income.

(2) Total of the assesssable income of each head and the aggregate of all these assessable incomes is called the Gross Total Income.

(3) From the Gross Total Income, thus arrived at deduct the deductions permissibly under sections 80C to 80U of the Act foe computing the total income. The balance left after subtracting the allowable deductions are called the Total Income.

(4) The amount of income tax payable is then calculated on this total income according to the rates prescribed by the Finance Act for the relevant assessment year and the rates prescribed under different section of the Act.

I. Computation of Tax for the Assessment Year 2019-20
Rates of tax for an individual, Hindu undivided family, associated of persons or body of individuals :

1. General rates (excluding short-term capital gains, specified in Sec. 111A , long-term capital gains, winning from lottery, crossword puzzle, races, etc.):

(a) Individual - Senior citizen (resident in India, who is of the age of 60 years or more but less than 80 years during the previous year):
    On Rs. 3,00,000 (Minimum exemption limit)                       Nil
    Next on Rs. 2,00,000                                                            5% 
   Next on Rs. 5,00,000                                                           20%
  Next - Balance                                                                    30%

(b) Individual - Super senior citizen (resident in India, who is of the age of 80 years or more during the previous year):
   On Rs. 5,00,000 (Minimum exemption limit)                      Nil
   Next on Rs.5,00,000                                                          20%
  Next - Balance                                                                   30%

(c) Other individuals, (Male or Female) H.U.F, AOP, or BOI :
   On Rs. 2,50,000 (Minimum exemption limit)                     Nil
   Next on Rs. 2,50,000                                                          5%
  Next on Rs. 5,00,000                                                          20%
 Next - Balance                                                                    30%

2. Special rates. On specified incomes the tax is charged at a specified flat rate: 
 (a) On short-term capital gains specified in Sec. 111A- @ 15%;
 (b) On long-term capital gains - @ 20%;
 (c) On gains from listed shares without indexing the cost of acquisition - @10%;
(ci) On long-term capital gains u/s 112A - @ 10%.
 (d) On winnings from lottery, crossword puzzle, horse race, etc.-@ 30%.

Rebate of income tax. In case of an individual resident in India, whose total income does not exceed Rs. 3,50,000 shall be entitled to a deduction from the amount of income tax payable up to         Rs. 2500.                                                                         (Sec. 87A)

II. Surcharge
 (a) @ 10% if the total income exceeds Rs.50 lakh but does not exceed Rs.1 crore.
 (b) @ 15% if the total income exceeds Rs.1 crore.

III. Marginal relief
 Where the total income exceeds Rs. 50 lakh the total amount payable as income-tax and surcharge on such income shall not exceed the total amount payable as income tax on a total income of Rs. 50 lakh by more than the amount of income that exceeds Rs. 50 lakh.

IV. Health and Education Cess
 Add Health and Education Cess @ 4% on the amount of income tax and surcharge.
In brief:
 Income tax on total income at the prescribed rates                 ........
 Add : Surcharge if any (10%/15%)                                          ........
                                                                                                   ........
Add : Health and Education Cess @ 4%                                   ........
                                                                     Tax Payable          ........

A person born on 1st April would be considered to have attained a particular age on 31st March, the day preceding the anniversary of his birthday.

Firm : A firm is liable to pay tax for Assessment Year 2019-20 at the following rates:
 (i) On short-term capital gains specified in Sec. 111A-@ 15%;
 (ii) On long-term capital gains - @ 10%/20% (Sec. 112%);
(iia) On long-term capital gains u/s 112A-@ 10%
(iii) On winning from lottery, crossword puzzle, horse race, etc.-@ 30%;
(iv) On other income -@ 30%.
 Surcharge. If total income exceeds one crore rupees @ 12%.
 Marginal Relief. As explained above (III point).