Fundamental Concepts of Indian Income Tax Law (IT Act, 1961)
Income from Salaries: Taxability and Components
Definition of Salary Income
Income from salaries refers to the payment received by an individual from an employer for services rendered. This includes wages, pension, and other monetary or non-monetary benefits. This income is taxable under the head “Income from Salaries” in the Income Tax Act.
Components of Taxable Salary Income
- Basic Salary: The fixed monthly salary paid by the employer is fully taxable.
- Allowances: Various allowances like House Rent
Canadian Retirement Planning: RRSP, CPP, OAS, and Tax Rules
RRSP Contribution Rules and Limits
Calculating the RRSP Limit
The RRSP Limit is calculated as: Lesser of (18% of earned income, RRSP dollar limit) minus Pension Adjustment (PA) plus Unused RRSP Room.
The RRSP Dollar Limit for 2023 is $30,780.
Earned Income vs. Excluded Income
Earned Income includes:
- Employment income
- Net business income
- Net rental income
- Taxable alimony
- CPP disability benefits
Excluded Income includes:
- Investment income
- Pension income
- Severance pay
Pension Adjustment (PA)
The Pension Adjustment
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Business Structures and Key Roles
- Sole Proprietorship
- A business owned by a single individual who has no partners or shareholders.
- Partnership
- A company owned by two or more persons who are personally responsible for all business liabilities and debts.
- Corporation (Sociedad Anónima)
- A company owned by shareholders, who have limited liability for the company’s debts.
- Agency Problem
- A conflict of interest between a company’s owners (shareholders) and its managers.
- Stakeholder
- Anyone with a financial interest
Corporate Structure and Financial Statement Fundamentals
The Corporation: Definition and Objectives
A corporation is an ingenious device for creating individual profit without individual responsibility.
Defining a Corporation
A corporation is:
- A virtual or fictitious entity.
- Created by the state through the process of incorporation.
- An entity with its own rights and liabilities: it can enter into contracts, buy, sell, or own property, bring lawsuits, and pay taxes.
Corporate Power and Control
Corporations:
- Are no longer merely instruments of the state.
- Are state-
Analyzing the Balance Sheet and Income Statement Components
Understanding Core Financial Statements
The Balance Sheet: Definition and Components
The Balance Sheet is the primary accounting document that reflects the financial position of a company at a specific time. It adheres to the fundamental accounting equation.
Defining Net Worth (Heritage)
Net Worth (or Heritage) is defined as the set of goods, rights, and obligations of the company at any given time. This definition contains three key elements:
- Assets (Goods/Properties): The set of properties owned by
Essential Income Tax Definitions and Key Concepts
Core Income Tax Terminology and Definitions
Fundamental Definitions (Section 2)
Person (Section 2(31))
As per Section 2(31) of the Income Tax Act, a “Person” includes:
- An Individual.
- A Hindu Undivided Family (HUF).
- A Company.
- A Firm.
- An Association of Persons (AOP) or Body of Individuals (BOI).
- A Local Authority.
- Any artificial juridical person not covered above.
Assessee
An Assessee is a person by whom any tax or any other sum of money is payable under the Income Tax Act. This term also includes a person against
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