Introduction to Income Tax Matters
Income Tax Matters
The Drawing and Disbursing Officers are entrusted to deduct accurateamount of Tax Deduction at Source (TDS) by the Income Tax Authorities, on the
other hand, the employees of the office approach the Drawing and Disbursing
Officer (DDO) to guide and suggest for income tax planning. In such scenario, a
DDO should be well versed and updated with all provisions of Income Tax
particularly in relation with computation of income of an individual,
computation of amount of Tax Deduction at Source (TDS), timely deposit of
deducted amount of TDS, generation of Form-16 / 16A for employees / vendors and
quarterly e-filing of e-TDS return.
What is a Tax?
Tax is a fee charged by a government on a product, income or activity. There
are two types of taxes: direct taxes and indirect taxes. If tax is levied
directly on the income or wealth of a person, then it is a direct tax e.g.
income-tax, wealth tax (introduced in 1957 and abolished in 2015 Union Budget).
Wealth Tax was replaced with a surcharge of 12% upon income of high net worth
individuals, HUFs, and Corporates. If tax is levied on the price of a good or
service, then it is called an indirect tax e.g. Goods and Services Tax (GST),
4-tier tax structure i.e. 5%, 12%, 18%, and 28%.
What is Income Tax Act?
The levy of income-tax in India is governed by the Income-tax Act, 1961.
The Act contains 298 sections and XIV schedules. These undergo change every
year with additions and deletions brought about by the Finance Act passed by
Parliament. The Income Tax Return is also filed by the citizens who have taxable income as per the Income Tax Act. As a DDO, the following details of each chapters should be known
regarding each chapter of the Income Tax Act:
•
Chapter I:
Introducing the Income Tax Act and how it works for Government.
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Chapter II:
When the Income Tax Act commenced and what the extent of the Income Tax
Act is enforced.
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Chapter III:
About the charge and levy of income tax, total income and its
scope, dividend income, and income arising from working abroad etc.
•
Chapter IV:
Various forms of incomes that do not included in the total income for
income tax purposes such as certain incomes from property, trusts,
institutions, incomes of political parties etc.
•
Chapter V:
Income of other individuals forming part of the taxpayers’ or assessee’s
total income including income from business / profession, capital gains,
house property etc.
•
Chapter VI:
This chapter contains provisions for transfer of income particularly
when there is no actual transfer of assets.
•
Chapter VII:
This chapter contains deductions applicable on certain payments and
incomes while computing the total income.
•
Chapter VIII:
This chapter contains rebates and share of member in an association or
body.
•
Chapter IX:
It is a principle that no income should be taxed twice. This chapters
contains double taxation relief that is rebate on income tax and relief in amount
of income tax payable.
•
Chapter X:
This chapter contains special provisions where payment of income tax is
avoided including agreements with foreign countries i.e. Double Tax Avoidance
Agreement (DTAA) and also information about those countries with which there
exists no agreement on tax payment.
•
Chapter XA:
This chapter contains general anti-avoidance rules for income tax.
•
Chapter XII:
This chapter details on the calculation of tax under certain special
cases
•
Chapter XIIA:
This chapter provides the special provisions for incomes earned by
Non-Resident Indians (NRIs).
•
Chapter XIIB:
This chapter contains special taxation provisions applicable to certain
companies from sections 115J to section 115JF.
•
Chapter XIIBB:
This chapter details the taxation process for conversion of a foreign
company into an Indian subsidiary.
•
Chapter XIID:
This chapter details the taxation process for profits made by domestic
companies. It also points out the interest payable on non-payment of tax by the
companies with the cases of defaults in payments.
•
Chapter XIIDA:
This chapter provide details on rules for levying tax on distributed
income of a company.
•
Chapter XIIE:
This chapter deals with the provisions of tax on distributed income of
unit holders.
•
Chapter XIIF:
This chapter contains provisions for tax on income received from venture
capital companies or venture capital funds.
•
Chapter XIIG:
This chapter contains the special provisions particularly related to taxation
of shipping companies.
• Chapter XIII:
This chapter contains all information about Income Tax authorities including their
appointments, powers, control etc.
• Chapter XIV:
This chapter provides details regarding section 139 to section 152 which are relating to how to deal and file with
income tax return. How to obtain Permanent Account Number (PAN) for filing
income tax return. It also provides details on online activities for income tax
return.
• Chapter XIVA:
This chapter contains the provisions for avoiding repetitive appeals including the appeals already
pending with the courts.
•
Chapter XV:
This chapter details the liabilities of taxpayers in various cases and
how to recover tax from the people and companies not adhering to rules or
intentionally not paying their taxes.
What does Income comprise?
As per income tax act, the definition of income is inclusive, means it
is not limited to certain types of incomes only. It states, “Income includes”.
The scope of income cannot be confined to a range of incomes only; it leaves
room for more inclusions within the ambit of the term. Income means net
receipts and not gross receipts. Net receipts are arrived at after deducting
the expenditure incurred in connection with earning such receipts. The
expenditure which can be deducted while computing income under each head.
