Income Tax Law and Practice: Key Concepts and Rules
Income Tax Law and Practice: Key Concepts
1. Income Tax Basics
Income Tax: A tax levied by the government on the income of individuals, corporations, and other entities.
Assessee: A person or entity liable to pay tax.
2. Types of Taxes
Direct Tax: Taxes paid directly to the government (e.g., Income Tax).
Indirect Tax: Taxes levied on goods and services (e.g., GST).
3. Sources of Income
- Income from Salary
- Income from House Property
- Profits and Gains of Business or Profession
- Capital Gains
- Income from Other Sources
4. Assessee Categories
- Individual
- Hindu Undivided Family (HUF)
- Company
- Firm
- Association of Persons (AOP)
- Body of Individuals (BOI)
5. Income Tax Returns (ITR)
ITR Forms: Various forms for different types of taxpayers (e.g., ITR-1 for individuals).
Due Date: Typically 31st July for individuals and 30th September for businesses.
6. Taxable Income
Gross income minus exemptions and deductions.
7. Income Tax Rates
Individual:
- Below ₹2.5 lakh: No tax
- ₹2.5 lakh to ₹5 lakh: 5%
- ₹5 lakh to ₹10 lakh: 20%
- Above ₹10 lakh: 30%
8. Rebate under Section 87A
Rebate for individuals with taxable income up to ₹5 lakh: ₹12,500.
9. Taxable Heads
- Salary: Income from employment, including wages, bonuses, and allowances.
- House Property: Income from renting or owning a property.
- Business or Profession: Income from self-employment or business.
- Capital Gains: Gains from the sale of capital assets (e.g., property, shares).
- Other Sources: Interest, dividends, etc.
10. Exempt Income
- Agricultural Income
- Dividend Income (up to ₹10 lakh)
- Income from Transfer of Certain Assets (e.g., Capital Assets under Section 10)
11. Exemptions
Section 10(14): Allowances like house rent allowance (HRA).
Section 10(5): Leave travel concession.
12. Deductions
Section 80C: Deductions up to ₹1.5 lakh for investments in PPF, NSC, life insurance, etc.
Section 80D: Deduction for insurance premiums for self, family.
Section 80E: Deduction for interest on education loans.
Section 80G: Deduction for donations to charitable institutions.
13. HRA (House Rent Allowance)
Exempt from tax based on the least of:
- Actual HRA received.
- Rent paid minus 10% of salary.
- 50% of salary for metro cities, 40% for non-metro cities.
14. Capital Gains Tax
Short-term: If the asset is sold within 36 months.
Long-term: If the asset is held for more than 36 months.
15. Tax on Business Income
Profits and Gains of Business: Income from businesses, including deductions like expenses, depreciation, etc.
16. Depreciation
Section 32: Deduction for depreciation on fixed assets.
17. Transfer Pricing
Regulations on pricing between related entities in cross-border transactions.
18. TDS (Tax Deducted at Source)
TDS Rate: Varies based on income type (e.g., salary, interest).
TDS Deduction: For salary, rent, interest, professional fees, etc.
19. TCS (Tax Collected at Source)
Applies to certain transactions like sale of goods, scrap, etc.
20. Advance Tax
Paid quarterly in advance based on estimated income.
21. Tax Audit (Section 44AB)
Required for businesses with turnover above ₹1 crore or professionals with income above ₹50 lakh.
22. Tax Assessment
Self-Assessment: Taxpayer calculates and pays taxes.
Regular Assessment: Done by the Income Tax Department.
23. Types of Assessments
Best Judgment Assessment: When the taxpayer fails to file returns.
Scrutiny Assessment: Detailed examination of tax return.
24. PAN (Permanent Account Number)
A unique identification number for individuals and entities for tax purposes.
25. Aadhar Linking
Mandatory for filing tax returns and obtaining PAN.
26. Penalty and Prosecution
Penalty: For concealment or misrepresentation of income.
Prosecution: For serious offenses like tax evasion.
27. Income Tax Act, 1961
The primary legislation governing income tax laws in India.
28. Section 80GG
Deduction for rent paid by individuals who do not receive HRA.
29. Section 10(10D)
Exemption of life insurance policy proceeds.
30. Corporate Tax Rates
Domestic Companies: 22% (with no exemptions) or 30% (with exemptions).
Foreign Companies: 40%.
31. Tax on Dividend Income
Dividends up to ₹10 lakh: Exempt from tax for individual taxpayers.
Above ₹10 lakh: Taxed at 10%.
32. Tax on Royalty and Fees for Technical Services
Taxed at 10% under Section 115A.
33. Tax on Interest Income
Taxed under the head ‘Income from Other Sources’.
34. Set-Off and Carry Forward of Losses
Set-Off: Losses from one head can be set off against income from another head.
Carry Forward: Unadjusted losses can be carried forward to future years.
35. Rebate under Section 87A
For individuals with taxable income up to ₹5 lakh, a rebate of ₹12,500 is available.
36. Section 80U
Deduction for individuals with disabilities (₹75,000 or ₹1.25 lakh, depending on the severity).
37. Tax Planning
Legal practice of minimizing taxes through careful financial and investment planning.
38. Taxable Year
Assessment Year: The year in which tax returns are filed.
Previous Year: The financial year in which income is earned.
39. Agricultural Income
Exempt from tax, but may be considered for determining tax slab for other income.
40. Tax Reforms
Regular amendments and changes in tax rates, rules, and compliance.
41. Double Taxation Avoidance Agreement (DTAA)
An agreement between two countries to avoid taxing the same income twice.
42. Income Tax on Non-Residents
Non-residents are taxed only on income earned or received in India.
43. Offshore Banking
Tax treatment of income from offshore investments and income repatriation.
44. Section 44AD
Presumptive taxation for small businesses (turnover less than ₹2 crore).
45. Section 80E
Deduction for interest paid on loans taken for higher education.
46. Section 80TTA/80TTB
Deduction for interest earned on savings accounts and fixed deposits.
47. Section 10(13A)
Exemption on HRA received for rent payments.
48. Special Provisions for NRIs
Tax exemption and provisions related to Non-Resident Indians.
49. Tax on Cryptocurrency
Tax on gains from cryptocurrency under capital gains.
50. Filing of Income Tax Returns
Online Filing: Most taxpayers can now file returns online through the official income tax portal.
This document is designed to cover the key concepts and provisions of Income Tax Law and Practice in a concise manner, helping you navigate through the essential aspects of the subject.