Indian Taxation System
BY PROF. KUNJAL SOLANKI
What is the meaning of tax?
Taxis considered as the cost of living in
society. It includes imposition of liability
on people after crossing a certain limit
of earning. Commonly tax is imposed by
Government authorities to meet common
welfare needs of society. There are two
types of taxes i.e. Direct & Indirect.
Direct and Indirect tax
Direct tax Indirect tax
Tax which is charged Tax levied on prices
directly on income or of goods & services.
wealth of people A The burden of
person who pays tax indirect tax could be
cannot recover it from
shifted to the
someone else.
ultimate consumer.
Why are taxes levied?
The revenues generated by the form of income taxes will be
utilized by the government to offer better amenities for the public,
such as roads and housing. All individuals earning above a certain
threshold should mandatorily file their income tax returns in order
to stay tax-compliant.
Who has authority to impose taxes?
Central & State Governments are empowered to levy tax as per the
Income Tax Act 1961 which came into force on 1st April 1962. •
The CBDT (Central Board of Direct Tax) is a part of the Department
of Revenue in the Ministry of Finance. It has been charged with all
the matters relating to various direct taxes in India and is
responsible for the administration of direct tax laws through the
Income Tax Department.
Basic Terminologies
Assessee -2(7) A person who is liable to pay tax or any other sum payable
under Income Tax Act.
Assessment – Process of determining, and computing the amount of
2(8) income & tax due of a person.
Assessment year - The period of twelve months commencing on the
2(9) first day of April every year
Previous year - 3 The financial year immediately preceding
assessment year
Person Income
Income earned by every person is 1. Profits, Dividends, allowances
taxed. A person is classified in
different categories.
2. Perquisites like rent free
accommodation
1. Individual
3. Remuneration to partner
2. Hindu Undivided Family
3. A Company
4. Winning from lotteries
4. Firm 5. Contribution to P.F
5. Association of Person: two or 6. Money (Non exceeding
more persons coming Rs.50,000) or property received
together for a common without consideration
purpose. Club, Trust, etc. 7. Subsidy or grants
6. Body of Individuals: Team of 8. Sum received under keyman
individuals working together insurance policy
to earn profit.
9. Salaries
7. Local Authority
10. Rents from house, etc
8. Artificial Juridical person
Residential Status
A person can be further classified on the basis of residential status
into (a) a Resident in India or (b) Non-resident in India. Resident
Individuals are further classified into (a) Ordinarily Resident or (b)
Not Ordinarily resident.
Points to be covered.
1. Residential status is determined for every previous year as it may change
from year to year. 2. Residential status is different from citizenship. 3.
Residential status is important in deciding whether foreign income of person is
taxable or not.
