DIRECT TAX BY CA SWATI GODBOLE CA SWATI GODBOLE

MEANING DIRECT TAXDIRECT TAX Charged directly on an individual, firm, company etc.Charged directly on an individual, firm, company etc. Tax on earningTax on earning INDIRECT TAX Charged indirectly on everybody, whether rich or poor Tax on purchases

QUESTIONS Whose income is charged to tax?Whose income is charged to tax? What is charged to tax?What is charged to tax? When is liability for tax is computed?When is liability for tax is computed? Income earned during what period is taxed?Income earned during what period is taxed? Who is liable to pay tax?Who is liable to pay tax? How is income & tax computed?How is income & tax computed?

PERSON – Section 2(31) IncludesIncludes –An Individual –A H.U.F. –A Company –A Firm –An A.O.P/ B.O.I –A Local Authority –Every other artificial juridical person

Problems

INCOME – Section 2(24) IncludesIncludes –Profit –Dividends –Perquisites –Allowance such as D.A –Profit on sale of Import License –Export Cash Assistance –Refund of Excise or Customs duty –Remuneration received by partner of a firm

Contd. Capital GainCapital Gain Profit of any business of insuranceProfit of any business of insurance Winning from lotteries, crossword puzzles, horse race, card games etc.Winning from lotteries, crossword puzzles, horse race, card games etc.

Important Points Periodical ReturnPeriodical Return Illegal IncomeIllegal Income Cash or KindCash or Kind Real Income (Remittance)Real Income (Remittance) Mutual Activity- from outside sourceMutual Activity- from outside source

Problems

ASSESSMENT YEAR The period of Twelve monthsThe period of Twelve months Commencing on the first day of April every yearCommencing on the first day of April every year Ending on MarchEnding on March Year in which income is taxedYear in which income is taxed

PREVIOUS YEAR A Financial yearA Financial year Immediately preceding the assessment yearImmediately preceding the assessment year Newly started businessNewly started business –Period beginning with date of setting up the business till March

ASSESSEE A personA person –by whom any tax, interest, penalty is due –Whose assessment of income, loss or refund is pending –A deemed assessee – a representative assessee –An assessee in default

Problems

ASSESSMENT A PROCESSA PROCESS –Determining, Computing –Amount of Income –Fixing the tax dues

Capital and revenue expenditure Not defined under the act, but one has to follow the natural meaning & decided cases.Not defined under the act, but one has to follow the natural meaning & decided cases. Acquisition of fixed asset against routine expenditureAcquisition of fixed asset against routine expenditure –Capital expenditure means expenses incurred while purchasing a fixed assets, as against revenue expenditure is recurring or incurred during the normal course of business

Contd. Benefit over several years against one yearBenefit over several years against one year –Capital expenditure benefits us for several years (life of the asset) as against revenue expenditure is consumed within a year. Improvement as against maintenanceImprovement as against maintenance –Capital expenditure leads to increasing the efficiency or earning capacity of the fixed asset. Whereas revenue expenditure helps in running the business smoothly.

Contd. Lump sum payment as against periodic paymentsLump sum payment as against periodic payments –To decide whether Capital expenditure or revenue expenditure, whether payment was made in lump sum or periodic cannot be deciding factor.

Company Section 2(17) defines Company to meanSection 2(17) defines Company to mean –An Indian company or –A body Corporate incorporated under the laws of a foreign country –Any institution, association or a body, whether incorporated or not and whether Indian or non Indian, which is declared by general or special order of the CBDT to be a Company

Indian Company Indian Company – Section 2(26)Indian Company – Section 2(26) –A company formed and registered under the Indian Companies act of 1956 –A company formed and registered under any law in force in the state of Jammu and Kashmir –Any institution, association or body which is declared by the board to be a Company under section 2(17)

Dividend Section 2(22) Under Section 2(22) – following payments or distribution by a company to its shareholders are deemed as dividend to the extent of accumulated profits of the companyUnder Section 2(22) – following payments or distribution by a company to its shareholders are deemed as dividend to the extent of accumulated profits of the company –Any distribution entailing the release of company’s assets. –Any distribution of debentures, debenture stock, deposit certificates and bonus to preference share holders –Distribution on liquidation of company

Contd. –Distribution on reduction of Capital –Any payment by way of loan or advance by a closely held company to a shareholder, holding substantial interest; provided the loan should not have been made in the ordinary course of business and money lending should not be substantial part of the company’s business

Total Income & its computation It is-It is- –Gross total Income***** –Less: Permissible deduction u/s.80***** ( section 80 C to 80 U) –Net taxable income***** Tax is calculated on the Net taxable income as per the applicable rates.Tax is calculated on the Net taxable income as per the applicable rates. The net taxable income is rounded off as per the provisions of section 288A and the tax payable is rounded off to as per provisions of section 288BThe net taxable income is rounded off as per the provisions of section 288A and the tax payable is rounded off to as per provisions of section 288B

RESIDENTIAL STATUS PERSON ALL ASSESSEE RESIDENT ONLY INDIVIDUAL & H.U.F RESIDENT BUT NOT NOT ORDINARY RESIDENT RESIDENT & ORDINARY RESIDENT NON RESIDENT

BASIC CONDITIONS STAY IN INDIA IN PREVIOUS YEARSTAY IN INDIA IN PREVIOUS YEAR 182 DAYS OR MORE182 DAYS OR MORE OROR 60 DAYS IN PREVIOUS YEAR & PRECEDING PREVIOUS 4 YEARS 365 DAYS60 DAYS IN PREVIOUS YEAR & PRECEDING PREVIOUS 4 YEARS 365 DAYS

EXCEPTIONS An IndividualAn Individual –Indian citizen, leaves India in previous year, as a crew member of an Indian Ship –OR –For employment An IndividualAn Individual –Who is person of an Indian Origin or Who is an Indian Citizen –Stayed outside India –Comes on a visit to India Does not mean leaving India for taking employment outside India, need not be an unemployed person who leaves India

CONDITIONS FOR R & OR Preceding previous 10 years, Resident at-least for two yearsPreceding previous 10 years, Resident at-least for two years ANDAND Stay in India in preceding previous seven years 730 days.Stay in India in preceding previous seven years 730 days.

Problems

HUF & RESIDENTIAL STATUS ResidentResident –Control & Management of affairs is exercised –Either completely or partially from India R & OR –Status of Karta of HUF? –R & OR –OR –NR or R but NOR

Control & Management Refers to Head and Brain – which direct the affairs of the business i.e. the policies, finance, disposal of profits, vital things concerning the management of the businessRefers to Head and Brain – which direct the affairs of the business i.e. the policies, finance, disposal of profits, vital things concerning the management of the business

Problems

COMPANY/AOP/BOI/FIRM AND RESIDENTIAL STATUS AOP/BOI/FIRM/Local authority/Artificial personAOP/BOI/FIRM/Local authority/Artificial person R & ORR & OR –Control & Management of affairs is exercised –Either completely or partially from India COMPANY Indian always R & OR Any other company –R & OR –Control & Management of affairs is exercised –Completely in India

Relationship between residential status & incidence of tax Incidence of tax on a tax payer dependsIncidence of tax on a tax payer depends –on his residential status and –also on the place & time of accrual or receipt of income.

Indian Income & Foreign Income Indian IncomeIndian Income –If income is received in India & also accrues in India (deemed to received & accrues in India) –If Income is received in India but accrues outside India –If Income is received outside India but accrues in India Foreign Income –Income is not received in India ( not deemed to receive in India) –Income does not accrue or arise in India.

INCOME DEEMED TO RECEIVE AND ACCRUE IN INDIA Examples of Income deemed to receiveExamples of Income deemed to receive –Contribution by the employer to the EPF account in excess of 12% of employee’s salary –Annual interest credited to the employee’s PF account in excess of 9.5% Examples of Income deemed to AccrueExamples of Income deemed to Accrue –All income accruing or arising whether directly or indirectly through / from Any business connection in India or Property in India or Asset or source of income in India or Transfer of Capital asset in IndiaAny business connection in India or Property in India or Asset or source of income in India or Transfer of Capital asset in India

Contd. –Salary payable for services rendered in India –Salary received by Indian national from Government in respect of services rendered outside India is deemed to accrue or arise in India –Any dividend paid by an Indian Company outside India –Etc.

SCOPE OF INCOME Particulars R & OR R but NOR NRI Income received in India TAXABLETAXABLETAXABLE Accrues in India TAXABLETAXABLETAXABLE Deemed to receive or accrue in India TAXABLETAXABLETAXABLE

Contd. Business income controlled wholly or partly from India TaxableTaxable Not Taxable Business / Profession controlled from outside of India Taxable Not Taxable

Any Other Taxpayer Type of Income Resident in India Non-resident In India Indian Income Taxable in India Foreign Income Taxable in India Not taxable in India

Problems