small taxpayers perception about income tax laws in india

7/31/2019 Small Taxpayers Perception About Income Tax Laws in India

1/153

SUMMER TRAINING PROJECT REPORT

ON

SMALL TAXPAYERS PERCEPTION ABOUT INCOME

TAX LAWS IN INDIA

A Report Submitted to

Ishan Institute of Management & Technology, Greater Noida as a

part fulfillment to full time Post Graduate Diploma in Finance

Management.

Submitted To: Submitted By:

DR. D K GARG ALISHA KANDOI

(CHAIRMAN) ENR NO. - FMR 3016IIMT, GR. NOIDA PGDFM (15th

batch)

ISHAN INSTITUTE OF MANAGEMENT & TECHNOLOGY

1A, Knowledge Park-1, Greater Noida, Dist.-G.B.Nagar (U.P.)

Website-www.ishanfamily.com

E-mail- [email protected]
http://www.ishanfamily.com/http://www.ishanfamily.com/http://www.ishanfamily.com/http://www.ishanfamily.com/


2/153

PREFACE

All students learn theoretical subjects in their classroom, but as we are the management students,

apart from theoretical studies we need to get a deeper insight into the practical aspects of those

theories by working as a part of organization during our summer training. Training is a period in

which a student can apply his theoretical knowledge in practical field. Basically practical

knowledge and theoretical knowledge have a very broad difference. So this training has high

importance as to know how both the aspects are applied together. So being a student of finance I

opt for training under a Charted Account firm.

The training session helps to get details about the working process in the

organization. It has helped me to know about the organizational management and discipline,which has its own importance. The training is going to be a lifelong experience.

This Project Report has been completed in Partial fulfillment of my management

Program, Post Graduate Diploma in Finance Management (PGDFM) in the Chartered

Accountant Firm. The objective of my project was to know about Perception of Small

Taxpayers about the Income Tax Laws.

Tax in an amount payable as a result of charging provision. It is compulsory

extraction of money by a public authority for public purpose, the payment of which is endorsed

by law. Kalidasa, the ancient Indian poet mentioned in one of his epics that the king collectstaxes for the good of his subjects just as sun draws moisture from the earth to give it back a

thousand fold.

. This project provides a broader knowledge about the income tax rules and provisions.

By doing a practical work one can only know the real application of Income tax rules. In this

study, a sincere attempt has been made to know all the heads of income to know about the gross

total income. This study has been divided into many topics. The topic covers introduction,

summary, conclusions and suggestions. It also covers many topics such as income, assessee,

sources of income, deductions, appeals & penalties etc.


3/153

CERTIFICATE

This is to certify that the project work done on Small Taxpayers perception about Income

TaxLaws In India submitted to Ishan institute of Management and Technology, Greater Noida

by Alisha Kandoi in partial fulfillment of the requirement for the award of degree of PG

Diploma in Finance Management is a bonafide work carried out by her under my supervision

and guidance. This project report is the original one and has not been submitted anywhere else

for any other degree/diploma. The original work was carried during 5th

May 2010 to 30th

June

2010 in Rajesh Sajjan & AssociatesCharted Accountant Firm.

Date: Seal/Stamp of the Guide

Name of the GuideRajesh Goyal

Address of the GuideMadhav Kunj


4/153

ACKNOWLEDGEMENT

I feel contentment to acknowledge a sense of deep gratitude to my guide CA. RAJESH

GOYAL, who has given me a prospect for the summer training in their organization. I also

acknowledge my cordial gratitude to him for his guidance and invaluable advice for the

completion of my project report. I would like to thank him for his lend a hand, timely feedback,

and showing me the right direction for accomplishment of project.

I take an opportunity to acknowledge our indebted to Honorable Chairman Sir Dr.

D.K.GARG (IIMT), and the entire respected Faculty for making available all facilities in

fulfilling the requirement for the reasonable work.

I am highly obliged to the staff of RAJESH SAJJAN AND ASSOCIATES; who

provided the guidance and assistance in spite of their busy schedule.

Last but not the least, I would like to thank my parents for their continuous encouragement and

moral & financial support during this project and for their sacrifices which they made to make me a

perfect person.

I wish to thanks one and all that have contributed their services, love and encouragement

and inspired me as they have directly or indirectly supported me with their knowledge.

Date :- ALISHA KANDOI

ENR: FMR 3016

PGDFM (15TH

BATCH)

IIMT, Greater Noida


5/153

DECLARATION

I, ALISHA KANDOI, daughter ofPAWAN KUMAR KANDOI do hereby declare that:

1) I have completed the above Summer Training on time.2) I have worked full time with the above organization.3) I will submit report latest by ________________.4) I have undertaken Summer Training5) My Summer Training Project shall be an original piece of my work.6) I have followed all Summer Project guidelines.7) In case of anything is found wrong or false, my training or project can be cancelled.

Date _______________ ALISHA KANDOI

ENR: FMR 3016

PGDFM (15TH BATCH)

IIMT, G.NOIDA


6/153

EXECUTIVE SUMMARY

This report has been prepared as part of the eight week summer internship programme which is

an integral part of Post Graduate Diploma in Finance Management (PGDFM) at Ishan Institute

of Management and Technology. The project entitled Small taxpayers perception about Income

Tax Laws in India with regards to Rajesh Sajjan and Associates which is a Chartered

Accountants firm is done as a part of the partial fulfillment of my PGDFM curriculum.

In this project a sincere attempt is done to present the rules and act of income tax

department as simply as I can make it easily understandable by each reader. As Income tax is

the most relevant topic I have given utmost care to provide data as latest as possible.

To execute the assigned task, I had to do consider all the aspect of assessment from the

very beginning. I had to analyze different sources of Income, ascertain the income which is to be

taxable and to ascertain the tax liability. I had to ascertain which Income tax Return Form is

applicable for assessee. I had also to go through the penalties & prosecution in Income tax

department. I learned the case studies on judgment given by the Supreme Court.

As far as my practical work I had done the work of TDS. TDS is paid quarterly. Time period for

quarterly TDS is 15 days. But for the last quarter time period is two and half month. Compu_tds

is the software which is used for TDS. I had given the salary information and form 16 of a

particular firm and I had to just fill those items in the compu-tds.Compu_tds also checks whetherall information are accurate or not. If there is some problem, then it shows some error through

which we can easily know about that and we can easily solve our problem also.


7/153

LITERATURE PREVIEW

Tax is an amount which is payable as a result of charging provision. Taxes are of two types-

direct and indirect taxes. Direct taxes are those which the taxpayers pays directly from hisincome/wealth etc.(Income Tax/Wealth Tax etc.).Indirect tax incidence of tax and impact of tax

falls on the same person. Indirect tax is a tax on product or service, the incidence of which is

borne by the consumers who ultimately consumes the product or service. The major source of

indirect taxes is excise duty, custom duty, sales tax, service tax, etc. Income tax plays an

important role in the Indian Revenue System. It is helpful in bringing economic equality by

reducing economic disparities. Power to levy Income Tax vests with the Central Government.

Kalidasa as, the ancient Indian poet, mentioned in one of his epics that the king

collects taxes for the good of his subjects just as sun draws moisture from the earth to give it

back a thousand fold. Income tax is treated both as a duty and as a burden. It depends upon

person to person. In ancient time, most of the people treated it as a huge burden but now situation

is changing. Now most of the people treat it as a duty.

The entire Income tax act is to be followed before filling any return, so as in reality it

is done. Before filling any return all the precaution are taken in respect of tax so as there should

not be any case of future scrutiny.

If an assessee is not satisfied with the order or assessment of the Assessing Officer, he

may file an appeal against the such order or assessment. Alternatively he can apply the

commission of Income Tax for revision of the order of the assessing officer. The first appeal

against the order of the assessing officer shall lie with the commissioner(appeal). Either the

assessee or the Assessing officer is not satisfied with the order passed by the commissioner(appeal), they can appeal against the order to Appellate Tribunal. Against an order passed by

Appellate Tribunal can be appealed to High Court and similarly, appeal against the order of High

Court can be filed to Supreme Court.

During summer training in Rajesh Sajjan and Associates I felt there are some

differences and some similarities in theoretical and practical aspect which is presented in the part

of this report.

As we all know that auditor is strictly provided that he should not disclose any fact

relating to any client to any person. And the same thing I find in my summer training. We are

not allowed to disclose any data of any client that is also the reason that I have not attached any

detail about the clients. A Charted Accountant always tries to reduce the tax liabilities of theclient by tax planning.

The act also speaks that if a person is not aware of the act then also he is liable to pay

taxes otherwise penalties can be charged on him. Penalties imposes a huge burden on an

ordinarily person. For the same the income tax department speaks that we should take help of

Charted Accountants but it is not possible for every person, as person having less income cant


8/153

pay fees. In the other hand why the professional person provides assistance without any benefit

so there is a need of creation of an easy way which will enable every person to pay taxes.

As I have done my project on Small taxpayers perception about Income Tax Laws in India , I

came to know about another important point is that general people dont pay taxes and dont

disclose their business activity because of the heavy pressure of maintenance of books of accountand other legal aspects. They have a view that showing their business concern in government

eyes will put them in many difficulties. So instead of making business transaction at lower

possible rate they like to do business illegally (means without any TIN or SRIN numbers) and

pay more for the same commodity. So income tax rules should be in the favour of the general

public so that every person will pay their tax.


9/153

TABLE OF CONTENT

Chapter No. Name of the Topic Page No.

1) Basic introduction of topic

2) Firms Profile

3) Important Definitions

4) Residential Status

5) Incidence of Tax

6) Assessment procedure and Appeals

7) Heads of Income

a) Income from Salary

b) Income from House property

c) Income from Profit and Gains of

Business or Profession

d) Income from Capital Gains

e) Income from other sources

8) Exempt Income

9) Deductions from Income

10) Set off and carry forward of lossess

11) Tax deduction at source(TDS)

12) Penalty

13) Other details

a) My Experience

b) Suggestions

c) Bibliography


10/153

CHAPTER-1

BASIC INTRODUCTION OF TOPIC

Tax is an amount payable as a result of charging provision. It is compulsory

extraction of money by a public authority for public purpose, the payment of which is endorsedby law.

TAXES ARE BROADLY CLASSIFIED INTO TWO CAREGORIES

Direct taxes

Direct taxes are those which the taxpayers pays directly from his income/wealth etc.(Income

Tax/Wealth Tax etc.).Indirect tax incidence of tax and impact of tax falls on the same person.

Indirect taxes

It is a tax on product or service, the incidence of which is borne by the consumers who ultimately

consumes the product or service. The major source of indirect taxes is excise duty, custom duty,

sales tax, service tax, etc

HISTORY OF INCOME TAX

In India, the income tax was first levied by Sir James Wilson in 1860.The tax was levied to

compensate the economic losses occurred to the British Government due to the revolution of

1857.In 1886,a detailed enactment was passed in relation to income tax. In the said enactmentamendments were made from time to time. In 1918, a new enactment was passed in which

income earned in the year was taxed in the same year. This enactment remained in force only for

4 years and in the year 1922, this enactment was replaced by the Income tax Act, 1922.In this

Act there was a provision of enacting Finance Act every year. In this Act, the income earned in

the previous year was made taxable in the current year. The said Act was amended from time to

time but the original structure was lost and to remove the difficulties in the said enactment a

DIRECT

INDIRECT

TAXES


11/153

committee was formed. On the recommendations of the committee Income Tax Act, 1961 was

passed in September 1961 which came into force with effect from 1st

April, 1962.

Income tax plays an important role in the Indian Revenue System. It is helpful in

bringing economic equality by reducing economic disparities. Power to levy Income Tax vests

with the Central Government.

PERCEPTION RELATED TO INCOME TAX AMONG THE PEOPLE

Kalidasa as, the ancient Indian poet, mentioned in one of his epics that the king collects taxes for

the good of his subjects just as sun draws moisture from the earth to give it back a thousand fold.

Income tax is treated both as a duty and as a burden. It depends upon person to person. In ancient

time, most of the people treated it as a huge burden but now situation is changing. Now most of

the people treat it as a duty.

1) FearIn ancient times, people feared with the name of the Income tax. It was so because they had to

pay huge tax on their small earnings. They always thought why they are earning if the

government will take more than half of their money. Earlier tax rate was also 60%.In ancient

times; exemption limit was also low as compared to modern time. Even in the year 1991to 1995,

the exemption limit raised from 22000 to 40000 which now reached to 150000.In ancient times

people were less educated and filing income tax took so many formalities, So they feared about

it. But now they are coming out of it. Now people are more educated and they know that income

tax is benefit for their own or for the development of their future. But still some poor people take

it as a burden.

2) Harassments in taxationIn ancient times, people felt harrashned while filing Income Tax because of so many formalities

which they had to fill. People were less educated in ancient times so they didnt know how to fill

the income tax forms. Earlier auditing was compulsory and they didnt want to indulge

themselves in such type of activities. Auditing of income tax charged some cost so they thought

nothing is left in their hands .Through this, they earned very less. They tried to far away from

their work. Their opinion was

No earning No tax No burden/fear

But now situation has changed. .Income tax is treated as a duty. There is no need for every

person to audit their accounts. If any company and any person having income more than

40,00000 and 60,00000 respectively, then they have to audit their account otherwise it is not

compulsory.


12/153

3) Higher taxation SlabsEarlier taxation slab was as much higher as compared to present time. Even in the year 1991 to

1995,the exemption limit was raised from 22000 to 40000 which now reached to 150000.Inancient times people were given less exemption as compared to present time. The maximum

marginal rate of personal Income Tax has been reduced from 56 percent to 30 percent. It was a

huge change in the tax rate within 15 years.

4) Lack of knowledgeEarlier people were less educated and they didnt know about the rules and regulations relating

to the Income Tax. They always treated it as a cleverness of the government .They thought that

work is done by themselves and money is shared by themselves and government both. But now

they are coming out of this perception, Now most of the people are educated and they know it is

better for the development of their country. It is helpful in bringing economic equality by

reducing economic disparities.

.


13/153

CHAPTER-2

FIRMS PROFILE

RAJESH SAJJAN & ASSOCIATES

CHARTERED ACCOUNTANTS

Contents:

I. Preliminary Information:

a) Entity Status

b) Registration Number

c) Location of Head-Office and Branch-Office

d) Strength of firm

e) Name & Qualification of Proprietor

II. Brief Introduction of the firm

III. Infrastructure available with the firm

IV. Scope of services rendered by the firm

V. List of Clients


14/153

(I) PRELIMINARY INFORMATION

a) Status : Proprietary Concern

b) (i) ICAI Reg. No. : 011694C

(ii)PANo. : ABVPG0357J

c) Location of Head-Office and Branch-Office :

Head Office : Madhav-Kunj, 252-253, Nai Mandi,

Hanumangarh Town335 513 (Rajasthan)

Phone No.: 01552-222655, 226655

Mobile : 94143-28335

Fax : 91-1552-231726

Email : [email protected]

d) Strength of firm : Proprietor is an FCA along-with DISA

e) Name of Proprietor: Sh.Rajesh Goyal, FCA, DISA (Mem.No. 093763)


15/153

(II)BASIC INTRODUCTION OF FIRM

Rajesh Sajjan & Associates, Chartered Accountants was constituted as a proprietory

concern of Sh.Rajesh Goyal. The firm has since grown since then. Starting with an office atHanumangarh (Rajasthan), as the firm grew, it made its presence felt in various professional

fields.. Now it is a leading law consultancy and audit-firm with a team of well-experienced

professionals and highly-motivated staff, which is providing comprehensive professional

services to a large number of companies and multinationals etc.

In today technology-driven market, the firm is engaged in providing various IT related

services in the field of Taxation, Accounting, Audit etc. The firm is already managing 2 TIN

Facilitation Centres in Rajasthan.

Proprietor of the firmSh.Rajesh Goyal (FCA, DISA) has a very strong background and

possess vast experience in profession. He is an ISA (Information System Audit) qualified

auditor from ICAI. Sh.Rajesh Goyal was earlier associated with M/s Sushil Jeetpuria &

Company, Chartered Accountants for three years at a stretch in a senior capacity. M/s Sushil

Jeetpuria & Co. is the leading Chartered Accountants firm in India in the area of Social Security

& Retiral Benefits Schemes. The experience involved in numerous professional capacity in vast

variety of clients.

Sh.Rajesh Goyal was articled with M/s Prakash K.Prakash, Chartered Accountants, New

Delhi. After qualification, he set-up his independent practice in Delhi and lateron got associated

with M/s Sushil Jeetpuria & Company as Head-Taxation, Audit & Payroll Division. Sh.Rajesh

Goyal gained rich experience during his relationship with M/s Sushil Jeetpuria & Co.

The firm has focused on numerous professional specialisations and amongst its area of

specialisations includes the practice of law including comprehensive handling of Income-tax

matters, Audit assignments and Provident Fund matters. The firm is keen to maintain the process

of growth and development and look forward to embrace emerging challenges.


16/153

(III) INFRASTRUCTURE AVAILABLE WITH THE FIRM

Rajesh Sajjan & Associates, Chartered Accountants is a leading consultancy firm in the field of

Taxation, Auditing, Social Security and Retiral Benefits schemes and is handling Payroll processing

of various clients with a team of highly experienced professionals and staff which is providing

comprehensive professional services to a large number of clients from all spheres of industry.

Infrastructure

The Company is fully equipped in terms of infrastructure for handling big audit assignments,

Payroll processing and maintenance of Provident Fund Trusts accounts etc. Details of Infrastructure

available with the Company are as under: -

a)Manpower : The Companyhas a staff strength of over 14 persons (including 10 articles)

having vast experience in handling taxation, audit assignments, payroll

processing, maintenance of PF Trusts accounts, legal matters, and investment

of trust-money in accordance with the prescribed pattern of investment.

b)Hardware : The Company has over 8 Computer Systems and a laptop with experienced

computer operators supervised by a senior qualified engineer.

c) Location : The Company has its head-office in Hanumangarh Town to cater to the needs of

his clients. The Head-office is situated at 252-253, Nai Mandi, Hanumangarh

Town.

d) Experience : The firm and its proprietor has rich experience in Income-tax and Audit related

works. The firm and its partners has already done a very large number of audits

under the various provisions of the Income-tax Act, The Company is having tax

audits of around 60 business firms. The details of nature and scope of works,

which can be handled by us are also enclosed.

e)Panel of Experts : Alongwith its partners, the firm has a penal of highly experienced

advocates in taxation matters, who provide their consultancy, expertise

and services on retainership basis. The penal includes experienced

advocates named--Sh.Sajjan Kumar Goyal, Sh.Narender Goyal &


17/153

Sh.Jagdish Gupta.

(IV) SCOPE OF SERVICES RENDERED BY THE FIRM

The firm renders comprehensive services in audit, taxation, IT and social security segments.

In the audit segment, the professional services extend to :

i) Corporate Statutory Audits under the Companies Act, 1956.ii) Statutory Audits under other legislative provisions like Tax Audits and Internal

Audits etc.

iii) Various audits such as Revenue, ISA Audit, Concurrent and other types of auditsof bank branches.

The audit services are available to corporate clients, co-operative societies, trusts,

partnership-firms and individuals etc.

Other than the audits, following other services are also rendered :

a) IT related services in the field of Taxation, Accounting, Audit etc.b) Tax consultancy, filing of returns, representation before tax authorities.c) Handling payroll outsourcingd) eFiling of TDS & Service-tax Returnse) Formation of Provident Fund/Superannuation Fund/Group Gratuity Fund Trustsf) Maintenance of accounts of various provident fund trusts.g) Investigative assignments.h) Maintenance of Statutory Records like Fixed Assets Registers, Minute Book etc.i) Consultancy on mergers, de-mergers, acquisitions, due diligence appraisals.j) Inventory audits and related advisory functions.k) Entity formulation supports i.e. incorporation of campanies, trusts, societies etc.l) Financial & Management consultancym) Various kinds of Certification jobs.


18/153

(V) LIST OF CLIENTS

1) TAX AUDITS ASSIGNMENTS Trendz Synthetics Corporation Sun Agro Enterprises, Sangaria group Ganga Rice & General Mills, HMH group Rajasthan Gypsum Udhyog group Qureshi & Brothers, Suratgarh group Shree Industries, HMH

Ram Chander Banarsi Dass Mundewala HMO group Rameshwar Lal Om Prakash, HMO group Sahi Ram Ram Chander, HMO group Nola Ram Pawan Kumar, Sangaria group

2) PRIVATE SECTOR COMPANIES/MNCs Helpline Securities Pvt.Ltd., New Delhi G.D. Laboratories India Pvt.Ltd., New Delhi Westfalia Separator India Pvt.Ltd. Officers Superannuation Fund Bently Nevada (Sales & Services) Pvt.Ltd. Group Gratuity Scheme FE Engg.& Consultancy Gratuity & Superannuation Trusts Earth Movers India Pvt.Ltd., New Delhi Azure Fuels India Pvt.Ltd., Sangaria

3) BANKING SECTOR The Bank of Rajasthan Ltd. State Bank of Bikaner & Jaipur UCO Bank State Bank of Patiala

4) STATE GOVT. ORGANISATION

CHAPTER-3


19/153

IMPORTANT DEFINATIONS

(A)PERSON(SECTION 2(31))(B)ASSESSE(SECTION 2(7))(C)ASSESSMENT YEAR(SECTION 2(9))(D)PREVIOUS YEAR(SECTION 2(34))(E)INCOME(SECTION 2(24))

A) PERSON(SECTION 2(31))

According to section 2(31) of the Income Tax Act 1961, the term person includes the

following 7 categories:

1. Individual:Natural persons are covered under Individual. It includes women, man,idiot, lunatics, minor for example, Sh. Pawan Kandoi.

2. Hindu Undivided Family: This word has not been explained in theAct.However,according to Hindu law it means a family which consists of all persons

lineally descended from a commom ancestor and includes their wives and unmarried

daughters.For example,a joint family of Shri Pawan Kumar,Smt.Pawan kumar and their

sons Sunil,RadhaMohan,Manoj,Manish,Sunils wife Archana and unmarried daughter

Mittu.

3. Company: For example,Suraj Diamond Limited.4. Partnership Firm: For example, Nalanda Prakashan which has Sourabh and Ankit as

Partners.

5. Association of Persons or a Body of Individuals, whether incorporated or not-e.g.Cooperative Society,club,etc.For example,friends club.


20/153

6. Local Authority: e.g.Municipality,Municipal Corporation,Port Trust,Panchayat,DistrictBoard and Contonment Board etc;for example,Bombay Municipal Corporation.

7. Any Artificial juridical person,not falling within any of the above categories.Forexample,Shri Govind Devji,Shrinathji,Bar Counsil,etc.

Note: An association of persons or a body of individuals or a local authority or an artificial

juridical person shall be deemed to be a person,whether or not they are formed with the object of

deriving income,profits or gains.

B) ASSESSEE(SECTION 2(7)):

According to section 2(7) of the Income Tax Act, 1961,assessee means any person by

whom any tax or any other sum of money is payable under this Act.

Assessee includes

(i) Every person in respect of whom any proceeding has been taken for the assessment:

His income or income of any other person. Loss sustained by him or other person. Amount of refund due to him or such other person.

(ii) Every person deemed to be an assessee under the Act.

(iii) Every person deemed to be an assessee in default under the Act.(iv) Every person in respect of who any proceeding under the Act has been taken for assessment

benefits.

The above definition divides various types of assessees into three categories:

(a)Ordinary assessee- It includes(i) Any person against whom some proceeding under this Act are going on. It

immaterial whether any tax or other amount is payable by him or not;

(ii) Any person who has sustained loss and has filed return of loss u/s 139(3);(iii) Any person by whom some amount of interest, tax or penalties is payable under

this Act; or

(iv) Any person who is entitled to refund of tax under this Act.(b)Representative assessee or deemed assessee- A person may not be liable only for his

own income but also on the income or the income or loss of other person that is guardian

of minor or lunatic, agent of a non-resident etc. in such case the person responsible for

the assessment of income of such person are called representative assessees. Such person

is deemed to be an assessee.


21/153

DEEMED ASSESSEE

1. In case of a person who dies after writing his will the executor of the property ofdeceased are deemed to as assessees.

2. In case a person dies intestate (without writing his will) his eldest son or other legalheirs are deemed as assessee.

3. In case of a minor, lunatic or idiot having income taxable under Income-tax Act, theirguardian is deemed as assessee.

4. In case of a non-resident having income in India, any person acting on his behalf isdeemed as assesses.

(c)Assessee-in-default. A person is deemed to be assessee-in-default if he fails to fulfill hisstatutory obligation. In case of an employer paying salary or a person who is paying

interest it is their duty to deduct tax at source and deposit the amount of tax so collected

in government treasury. If he fails to deduct at source or deducts tax but does not deposit

it in the treasury, he is known as assessee-in-default.

C)ASSESSEMENT YEAR(SECTION 2(9)):

Assessment year means the period of 12 months starting from 1st

April of

every year and ending on March, 31 of the next year. Our assessment year will be 2010-

2011.

D) PREVIOUS YEAR (SECTION 2(34)):

The Financial year immediately preceding the assessment year is known as

previous year. For assessment year 2010-2011, the previous year will be 2009-2010.The

income earned in previous year 2009-10 will be taxable in assessment year 2010-11.

Previous year in case of newly set up business or profession-

In the case of newly set up business or profession or a source of income newly coming

into existence,the first previous year will be the period commencing from the date of setting

up of business or profession or,as the case may be,the date on which the source of income

newly comes into existence and ending immediately following March 31.

The income of the previous year is taxable in the following year called as the

assessment year.However there are certain exemptions to this rule-

(a)Shipping business of non-residents- In this case,7.5% of the amount of freight,fare,etc.is deemed as income of the non-resident tax payer and tax is payable at the rate


22/153

applicable to a foreign company.Income is thus taxable in the same year in which

freight,fare,etc is collected and not in the immediately following assessment year.

(b)In case of a person leaving India with an intention of not returning back- The totalincome of such individual upto the probable date of his departure from India shall be

chargeable to tax in that year itself according to the rates applicable to that assessment

year.

(c)Assessment of AOP or BOI or artificial juridical person formed for some specialpurpose or event-If it appears to the assessing officer that the AOP or BOI or the

artificial juridical person which is formed or established or incorporated for a particular

event or purpose is likely to be dissolved in the assessment year,the same can be

chargeable to tax in the assessment year itself .

(d)Alienation of assets with a view to avoid tax- If it appears to the Assessing officer thata person is likely to charge,sell or transfer or dispose of any of his asset with a view to

avoiding payment of any liability under the Income Tax Act,the total income of such

person from the first day of the assessment year to the date when the proceeding isstarted,is taxable in the assessment year itself.

(e)Discontinued business or profession- In case a business or profession is discontinued inany assessment year,its income from April 1

sttill the date of discontinuation may be

taxable either in the previous year in which the business is discontinued or it can be

charged in the normal manner in the assessment year.This choice is at the discretion of

the Assessing officer (section 176).

E) INCOME(SECTION 2(24)):

The term income is very important as the income tax is levied on income.Under the

Income Tax Act, 1961 the income has been defined in an inclusive manner.Accordingly,

following are included in the income:-

a) Profits or gains of business or professionb)Dividendc) Voluntary contribution received by a charitable or religious trust or institution.d)The value of perquisite or profit in lieu of salary taxable U/S 17 and special allowance or

benefit specially granted either to meet personal expenses or for the performance of dutiesof an office or an employment of profit.

e) Export incentives, like Duty Drawback, Cash Compensatory Support, Sale of licenses etc.f) Interest, salary, bonus, commission or remuneration earned by a partner of a firm from

such firm

g)Capital Gains chargeable U/S 45.


23/153

h)Winning from lotteries, crossword puzzles, races including horse races, card games andother games of any sort or from gambling or betting of any form or nature whatsoever.

i) Deemed income U/S 41 or 59.j) Sums received by an assessee from his employees towards welfare fund contributions

such as provident fund, superannuation fund etc.

k)Amount received under Keyman Insurance Policy including bonus thereon.l) Amount received under agreement for

i) Not carrying out activity in relation to any business or

ii) Not sharing any know-how, patent, copyright etc.

m)Benefit or perquisite received from a Company, by a Director or a person holdingsubstantial interest or a relative of the Director or such person.

n)Any sum received by an Individual of HUF by way of gifts,exceeding Rs 50000.COMPUTATION OF TOTAL INCOME

Income-tax is charged on the Total Income of a Previous Year at the rates prescribed for theAssessment Year.

BASIS OF CHARGE

Section 4

The total income of the previous year. Of every person shall be charged to income tax At the rates prescribed in the annual Finance Act. As applicable to the relevant assessment year. The income shall be so charged in accordance with and Subject to the provisions of Income Tax Act.

A 'resident' tax payer is charged to income-tax on his global income, subject to a

double taxation relief in respect of foreign incomes taxed abroad. In the case of a 'nonresident',

income-tax is charged only on incomes received, accruing or arising in India or which are

deemed to be received, accrued or arisen in India.

For the purpose of computing total income and charging tax thereon, income from various

sources is classified under the following heads:

A. Salaries.

B. Income from House Property.

C. Profits and Gains of business or profession.

D. Capital Gains.

E. Income from Other Sources.

These five heads of income are mutually exclusive. If any income falls under one head, it cannot

be considered under any other head. Income under each head has to be computed as per the


24/153

provisions under that head. Then, subject to provisions of set off of losses between the heads of

income, the income under various heads has to be added to arrive at a gross total income. From

this gross total income, deductions under Chapter VIA are to be allowed to arrive at the total

income.

On this total income tax is calculated at the rates specified in the relevant Finance Act or

the rates given in the Income Tax Act itself. The above procedure is summarized below:

GROSS TOTAL INCOME A+B+C+D+E

TOTAL INCOME GROSS TOTAL INCOME DEDUCTIONS

UNDER CHAPTER VIA

TOTAL TAX PAYABLE TAX ON TOTAL INCOME

COMPUTATION OF TOTAL INCOME:-A] Income from Salaries

Salary / Bonus / Commission, etc xxxxx

Taxable Allowance xxxxx

Value of Taxable Perquisites xxxxx

Gross Salary xxxxx

Less: Deduction under Section 16(ii) & (iii) xxxxx

Net taxable income from Salary xxxxx

B] Income from House Property

Gross Annual Value xxxxx

Less: Municipal Tax paid by Owner xxxxx

Net Annual Value xxxxx

Less: Municipal Tax paid by Owner xxxxx

Income from House Property xxxxx

C]Profits and Gains of Business and Profession

Net Profit as per P&L Account xxxxx

Less: Allowable expenditure & income

not chargeable to tax under this head

xxxxx

Add: Inadmissible expenditure xxxxx

Net Profit & Gains of Business & Profession xxxxx

D] Capital Gains

Capital Gain as computed xxxxx


25/153

Less: Exemptions xxxxx

Income from Capital Gains xxxxx

E] Income from other sources

Gross Income xxxxx

Less: Deductions xxxxx

Net Income from other sources xxxxx

COMPUTATION OF TOTAL INCOME

Gross Total Income xxxxx

Less: Deduction available under Chapter VIA xxxxx

Total Income xxxxx

RATE OF INCOME TAX FOR ASSESSMENT YEAR 2010-11.

(I) For Individuals, Hindu Undivided Family, Association of Persons, Body ofIndividuals

INCOME SLAB RATES OF INCOME TAX

Upto Rs.1,60,000 Nil

Rs.1,60,001 to Rs.3,00,000 10% of amount by which total income exceeds

Rs.1,60,000

Rs.3,00,001 to Rs.5,00,000 Rs.14,000+20% of amount by which total incomeexceeds Rs.3,00,000

Rs.5,00,001 & above Rs.54,000+30% of amount by which total income

exceeds Rs.5,00,000

(II) For women resident in India and below the age of 65 yearsINCOME SLAB RATES OF INCOME TAX


Rs.1,90,001 to Rs.3,00,000 10% of amount by which total income

exceeds Rs.1,90,000

Rs.3,00,001 to Rs.5,00,000 Rs.11,000+20% of amount by which total

income exceeds Rs.3,00,000

Rs.5,00,001 & above Rs.51,000+30% of amount by which total

income exceeds Rs.5,00,000


26/153

(III) For Senior CitizenINCOME SLAB RATES OF INCOME TAX


Rs.2,40,001 to Rs.3,00,000 10% of amount by which total income exceeds Rs.2,40,000

Rs.3,00,001 to Rs.5,00,000 Rs.6000+20% of amount by which total income exceeds

Rs.3,00,000

Rs.5,00,001 & above Rs.46000+30% of amount by which total income exceeds

Rs.5,00,000

Notes-

1) Surcharge-Nil2) Education cess- It is 2% of Income Tax.

3) Secondary and higher education cess- It is 1% of Income Tax.

CHAPTER-4

RESIDENTIAL STATUS

An individual or HinduUndivided Family can be either

(1)Resident and ordinarily resident in India, or

(2)Resident but not ordinarily resident in India, or(3)Non-resident in India.

All other assesses can be either

(1)Resident in India or(2)Non-resident in India.


27/153

Before discussing anything, first of all we have to know what are the basic conditions and what

are the additional conditions-

BASIC CONDITIONS

1) An individual is in India in the previous year for 182 days or more:or2) He is in India for a period of 60 days or more during the previous yesr and 365 days or

more during the 4 years preceding the previous year.

ADDITIONAL CONDITIONS

1) He must be a resident in India in 2 out of the 10 previous year preceding that year:and2) He must be present in India during the 7 years preceding that year for an aggregate period

of 730 days or more

Exceptions:

Under the following circumstances,the period of 60 days as mentioned above will be extended to182 days:

a) An Indian citizen who leaves India during the previous year for the purpose ofemployment outside India.

b) An Indian citizen who leaves India during the previous year as a member of the crew ofan Indian Ship.

c) An Indian citizen or a person of Indian origin (who is abroad) who comes to India on avisit during the previous year.

Meaning of person of Indian origin:

A person is said to be of an Indian origin if he or his parents or his grandparents wereborn in undivided India.

PROVISIONS FOR THE DETERMINING RESIDENTIAL STATUS ARE AS

FOLLOWS:

Assessee Condition for determining residential status

i. Individual [Sec. 6(1) and 6(6)(a)]1.Non-resident An individual who does not satisfy any of the basic conditions will be treated

as a non-resident. For him, the additional conditions are not required to be

considered.

2.Resident but

not ordinarily

resident

An individual who satisfies atleast one of the basic conditions and only one

or none of the additional conditions.

3.Resident and An individual who satisfies any one or both of the basic conditions and both


28/153

Ordinary

resident

of the additional conditions.

ii. Hindu Undivided Family [sec.6(2)]1.Non-resident If the control and management

1of its affairs is wholly situated outside India.

2.resident but

not ordinarily

resident

If the control and management1

of its affairs is wholly or partly situated

outside India and Karta or manager of family is not able to satisfy either both

or one of the additional conditions2.

3.Resident and

Ordinary

resident

If the control and management1

of its affairs is wholly or partlysituated in

India and Karta or manager of family is able to satisfy both of the additional

conditions2.

iii. Firm or Association of Person [sec.6(2)]1.Non-resident If the control and management

1of its affairs is whollysituated outside India.

2.Resident If the control and management1

of its affairs is wholly or partlysituated in

India.iv. Any company [sec.6(3)]

1.Non-resident If the control and management of its affairs is wholly or partly situated

outside India.

2.Resident (1)An Indian company or (2) A company other than an Indian company

whose control and management is wholly situated in India.

v. Any other person [sec.6(4)]1.Non-resident If the control and management of its affairs is whollysituated outside India.

2.Resident If the control and management of its affairs is wholly or partly situated

outside India.

Meaning of Control and Management-

Control and management is situated at that place where the policies are framed for the

business and directions are issued for carrying out the business. Generally the right to control and

manage vests with the Karta of the family.In case the control and management of the affairs is

carried out at many places,then atleast one of the place must be situated in India.


29/153

CHAPTER-5

INCIDENCE OF TAX

According to Section 5 of the Income Tax Act, 1961, the tax incidence of an

assessee depends on his residential status. The following provisions have been made in this

respect:-

1) Scope of Total Income of Resident: The following incomes shall be included in thetotal income of a resident assessee:

a) Income which is received or is deemed to be received in India in the previous year byhim or on his behalf;or

b) Income which accrues or arises or is deemed to accrue or arise to him in India duringthe previous year;or

c) Income which accrues or arises to him outside India during the relevant previousyear.

2)

Scope of Total Income of Not Ordinarily Resident: The following incomes shall beincluded in the total income of a Resident but not ordinarily resident assessee:

a) Income which is received or is deemed to be received in India in the previous year byhim or on his behalf;or

b) Income which accrues or arises or is deemed to accrue or arise to him in India duringthe previous year;or

c) Income which accrues or arises to him outside India from a business controlled fromIndia or a profession set-up in India.

3) Scope of Total Income of Non-resident: The following incomes shall be included inthe total income of a Non-resident assessee:

a) Income which is received or is deemed to be received in India in the relevantprevious year by or on behalf of such person;or

b) Income which accrues or arises or is deemed to accrue or arise to him in India duringthe relevant previous year.


30/153

TABLE SHOWING THE SCOPE OF TOTAL INCOME

INCIDENCE OF TAX

Particulars

Resident

and

Ordinarily

Resident

Resident

but not

Ordinarily

resident

Non-

resident

Income received in India whether accrued in

India or outside India by him or on his

behalf

Taxable Taxable Taxable

Income deemed to be received in India

whether accrued in India or outside India by

him or on his behalf

Taxable Taxable Taxable

Income accruing or arising in India whether

received in India or outside India Taxable Taxable Taxable

Income deemed to accrue or arise in India

whether received in India or outside India Taxable Taxable Taxable

Income received and accrued outside India

from a business controlled in or a profession

set-up in India

Taxable Taxable -

Income received and accrued outside India

from a business controlled from outside

India or a profession set-up outside India

Taxable - -

Foreign Income of Past years brought in


31/153

India during previous years - - -

Note-

Exempted Income shows - sign.

Following are the definitions of certain terms used in determining the scope of

total income of the assessee:

1) INCOME RECEIVED IN INDIA: The income earned in India is taxable in all thecircumstances whether it is received in India or outside India. Following are the some

important points in this respect:

a) Income is treated as received on the first occasion: The receipt of income refersto the first occasion when the recipient gets the money under his control. The

receipt of income on the first occasion determines the year and place of receipt.If

any income is received for the first time outside India and later on the same is

remitted to India ,then the same shall not be treated as income received in India.

b) Transferred income is no income: If any income is earned and received outsideIndia but later on the same is transferred to India, then such transferred income shall

not be treated as income in India.

c) Deemed receipt is treated as actual receipt: If any representative of the assesseereceives any income on behalf of the assessee outside India, such income shall be

deemed to be earned outside India.

It is important for a non-resident assessee to know whether the income is

received outside India or in India because in case of non-residents, only thoseincomes which are received in India is taxable.

d) Same income cannot be taxed twice: During any previous year if any income hasbeen earned outside India and the assessee has already paid tax on it and

subsequently the same income is received in India for the first time,it shall not be

taxable again because there cannot be double taxation in respect of same income.


32/153

2) INCOME DEEMED TO BE RECEIVED IN INDIA: According to section 7 of theIncome tax Act,1961 the following incomes shall be deemed to be received in India:

a) Employers contribution to Provident Fund: Employers contribution in excess of12% in a recognized provident fund is taxable. Though the employee receives this

income on his retirement or on his leaving the service, but it will be deemed to be the

income of the previous year when such excess contribution is made and it is deposited in

the provident fund.

b) Interest credited to Recognised Provident Fund: Interest credited in excess of 8.5%on the aggregate contribution of the employer and the employee shall be taxable in the

year in which it is credited to the account.

c)

Tax deduction at source in hands of payee: The Income Tax Act,1961 provides for taxdeduction at source in certain cases.The person who receives the net income(after tax

deduction) is required to gross such income. The tax deduction is deemed to be the

income of the assessee.

d) Contribution by Govt. to 80 CCD pension fund: The contribution made by the CentralGovernment in the previous year to the account of an employee under a pension scheme

referred to in section 80 CCD shall be deemed to be received in India.

3) INCOME ACCRUED OR AROSE IN INDIA: Income is said to accrue or arise inIndia when there is a right to receive the income becomes vested .in the assessee, though

he may actually not receive it. The Income Tax Act,1961 has not differentiated between

the terms accrue and arise. The methed of accounting followed by the assessee

determines the taxability of accrued income. If the assessee follows mercantile system of

accounting, then such income is taxable when it is accrued or arose. However if the

assessee follows cash system of accounting, then the income accrued or arose shall not be

taxable unless the same has been received.

4) INCOME DEEMED TO ACCRUE OR ARISE IN INDIA: According to section 9 ofthe Income Tax Act,1961 following are certain incomes which are deemed to be income

accrued or arose in India:

a) Income from business connection in India: Business connection means thebusiness relations between the resident assessee and a non-resident assessee whereby


33/153

the resident assessee earns profit and the non-resident assessee receives such profit.

Following are some of the examples of such business connections:

(i) Maintaining a branch office in India for the purchase or sale of goods ortransacting other business.

(ii) Erecting a factory in India where the raw produce purchased locally is workedinto a form suitable for export.

(iii) Forming a local subsidiary company to sell the products of the non-residentcompany.

(iv) Having financial association between a resdent and a non-resident assesseee.(v) Income of Business Process Outsuurcing(BPO) Unit of foreign companies

from permanent established in India.

In case all the operations are not carried out in India, then only that portion of profits which

are attributable to operations carried out in India shall be deemed to accrue or arise in India.

b) Income from property or any other source of income in India: The term propertyrefers to movable and immovable property. For example- if a non-resident assessee

purchases a house property in India and lets it out on rent and he receives such rental

income outside India, such income shall be deemed to accrue in India as the property

is situated in India.

5) SALARY EARNED IN INDIA: Salary payable for services rendered in India, whetherpaid outside India shall be deemed to accrue or arise in India.Salary payable for rest

periods or leave periods which may precede or succeed the services rendered , provided,

such rest or leave periods form part of the service contract of employment shall be deemed

to accrue or arise in India.

6) SALARY RECEIVED FROM THE GOVERNMENT: Salary income payable by theGovernment to a citizen of India for service outside India shall be deemed to accrue or

arise in India.

7) DIVIDEND: Dividend paid by an Indian Company outside India is deemed to accrue orarise in India.

8) INTEREST INCOME FROM THE FOLLOWING:(a)The Government(b)A resident person(except the situation when interest is payable on loan received for

business run outside India or income earned from other sources.


34/153

(c)A non-resident, where the interest is payable in respect of the debt incurred, or moneyborrowed and used, for the purpose of a business or profession carried on by such

person in India.

Note:- The above mentioned provisions apply to non-residents only, as the resident assessee istaxed on all his income whether received in India or outside India. Therefore, these provisions

have significance only in case of non-residents.

CHAPTER-6

ASSESSMENT PROCEDURE AND APPEALS

( SEC-139 TO 154 AND 246 TO 254)

(A) ASSESSMENT PROCEDURE

Assessment means computation of total income and tax payable on such income.

Income tax is imposed every year, hence, assessment of tax is made every year of an assessee.

The procedure of assessment begins with the filing of return of income and remains continue till

computation of tax payable and issue of demand notice.

The entire procedure of assessment can be divided into the following heads:

1) Return of income,2) Types of assessment:

A. Self-assessment,B. Regular assessment,C. Best judgement assessment,D. Re-assessment

3) Rectification of mistakes,4) Notice of demand,5) Intimation of loss,

RETURN OF INCOME


35/153

1. Submission of return of income (Section 139(1)): Every person being a company andbeing a person other than company whose total income exceeds the maximum amount

which is not chargeable to income tax, shall furnish a return of income in prescribed

form and procedures on or before due dates.

It is mandatory for a company to file income tax return whether loss occurred

in the previous year. For the assessment year 2008-2009,income not exceeding Rs. 1,10,000 in

case of an individual and H.U.F. is not chargeable to tax. The women assessee

having age less than 65 years is entitled to enjoy exemption limit of Rs. 1,45,000 and in case of

senior citizen (both men and woman) the income upto Rs.1,95,000 is exempt from tax. Any

person other than partnership firm and company will have to file his return only if total income

after allowing deductions under chapter U/A or section 10A, 10B, exceeds the exemption limit.

There person are:

An Individual, Hindu undivided family,

AOP/BOI, Artificial Judicial person.

Under the new law a person as stated above having income not exceeding the exemption

limit may file his return.

2. Due date for submitting return of income: The following are the due dates forsubmitting of return of income for various types of assesse.

S.No. Assessee Due Date

1. Company Assessee

2. Non-Company Assessee whose books of

accounts are necessarily required to get

audited.

30th

Sept. of

assessment year

3. Working Partner of a firm of which books

of account are necessarily required to getaudited.

4. Other assessee whose books of account are

not required to get audited 31st

July of assessment

Year


36/153

Note-

(i) If there is a holiday on the due date of return then return can be submitted on the nextday.

(ii) If return is submitted after the due date, then simple interest @1% per month or partof month for delayed period u/s 234A will be charged.

3. Prescribed form for return of Income: The return of income should be submitted inprescribed form given under Income Tax new rule 12. This rule classifies the assessee

as follows:

S.No. Category Of Assessee Form No.

1. For Individual having income from salary

and interest or family pension under the

head income from other sources.

ITR-1

2. For Individuals(who is not covered under

S.No.1)and HUFs not having business or

professional income.

ITR-2

3. Individual or HUF who is partner in

partnership firm and having on income

under the head business or

profession,interest, salary, bonus.

ITR-3

4. For Individuals and HUF having income

from a proprietary business or profession.

ITR-4

5. For firms, AOPs and BOIs. ITR-5

6. For companies other than companies

claiming exemption under section 11. ITR-6

7. For persons including companies requiredto furnish return under section

139(4A)/(4B)/(4C)/(4D).

ITR-7

8. For person who is not required to furnish

return of income but is required to furnish

the return of fringe benefits.

ITR-8


37/153

9. Where the data of the return of

income/fringe benefits in Forms-ITR-1 to

ITR-8 transmitted electronically without

digital signature.

ITR-V

4. Bulk filing of returns of employees by employer(Section 139(1A)): An assesseehaving Income from salaries may deliver his income to his employer and employer

shall submit such return and income as per prescribed rules by the CBDT on or before

due date. The return of income shall be submitted in prescribed format. The prescribed

format contains floppy diskette, Magnetic Cartridge tape, CD-ROM or other means

read by computer also.

Where the employer employs minimum 50 employees whose total incomeexceeds the maximum exemption limit returns of employees may be filed.

5. Submission of return of loss(Section 139(3)): If an assessee incurres losses under thehead business or profession or Capital Gains and he wants to carry forward the losses,

then he shall have to submit the return of loss u/s 139(1) also. If the return of loss is not

submitted with in the prescribed time, then such losses cannot be carried forward and

set off.

6. Late filing of return of income or belated return(Section 139(4)): If return is notfurnished within the time allowed under section 139(1) or within the time allowed

under notice issued under section 142(1), the person may, before the assessment is

made,furnish the return of any previous year at any time before the end of one year

from the end of relevant previous year at any time before the end of one year from the

end of relevant previous year.Losses cannot be carried forward if rerurn is submitted

late.

7. Submission of revised return of income u/s 139(5): If an assessee after submission ofreturn u/s 139(1) or u/s 142(1) discovers any omission or any mis-statement in the

return already submitted, he may furnish a revised return u/s 139(5). This return of

income can be filled with in one year before the expiry of end of the relevant

assessment year or before the completion of assessment whichever is earlier. Belated

return of income u/s 139(4) cannot be submitted as revised return of income u/s

139(5).Revised return is the replacement of original return.


38/153

8. Defective return of income u/s 139(9): If an assessing officer finds that the return ofincome submitted by the assessee in defective, then he shall intimate the assessee by

giving the period of 15 days for rectifying the mistakes. If the mistakes are not rectified

within the prescribed time,then the return of income shall be deemed to be invalid and it

shall be assumed that no return of income has been filed by the assessee.

If the assessee rectifies the defective return after the completion of time

prescribed but before assessment, then Assessing Officer may condone the delay and

treat the return as a valid return.

9. Signature on Return(Section 140): The return u/s 139 shall be signed and verified asunder:

(i) In case of an individual: Generally an individual signs himself, where he isabsent from India, then the person duly authorized by him can sign. If the

person is mentally incapacitated from attending to his affairs, by his guardian or

any other person competent to act on his behalf shall sign.(ii) In case of HUF: Only by Karta and in case of the Karta is absent from India or

the Karta is mentally incapacitated from attending to his affairs, the return can

be signed by any other adult member of the family.

(iii) In case of a Company: By the managing Director where for any unavoidablereason such Managing Director in case of the company being wound up, it can

be signed by the liquidator of the Company.

(iv) In case of the firm: By the Manging Partner or by the any adult partner. Ifmanaging partner is not able to sign and verify the return for unavoidable

reason.

(v) In the case of local authority: By the principal officer thereof.(vi) In case of any other person: By any competent or duly authorised person on

his behalf.

10.Permanent Account Number(PAN)(Section 139A): Permanent Account Number is anumber which is allotted by the Assessing Officer for recognition of the person. PAN

has 10 alphanumeric characters contained by a laminated card. The person who has

been allotted PAN, shall disclose such number necessarily while corresponding with

Income Tax department. It wil also be quoted on submitting return of Income, Challan

and other documents.

Note: If any person who has not been allotted a Permanent Account Number or who

does not have GIR number shall make a declaration in form no. 60, if he enters in any

of the above transactions requiring PAN. Any person having agriculture income shall

make declaration in form no. 61.It is not applicable to non-resident.


39/153

TYPES OF ASSESSMENT

A) SELF-ASSESSMENT(SECTION 140A):Self-assessement refers a system under which an assesse computer taxable

income himself as well as tax on it while submitting return of income. In this situation

the amount of tax shall be paid before submitting return of income. TDS and advance

tax are deductible to compute the amount of tax payable.

If the return of income has been submitted belated or advance tax has not been paid

completely or timely, then interest payable u/s 234A, 234B and 234C shall also be

computed by himself and the submitted alongwith return of income.

If the amount deposited by the assesse is less than the amount of tax payable and

interest, then the amount so deposited would also be adjusted for interest very and

remaining would be adjusted for tax payable.

B) REGULAR ASSESSEMENT (SECTION 143):An assessement u/s 143 is considered as regular asessement. There are two of

regular assessement:

(1)Summary assesement on the basis of return of income.(2)Scrutiny assessement on the basis of evidence.

Following provisions should be considered before description of regular

assessment:-

a) Issue of Notice to assessee(section 142(1)): The Assessing Officer can givenotice to the assessee for the following act;

(i) If the assessee has not submitted his return of income u/s 139(1)within the time prescribed;

(ii) If the assessee has not submitted return of income and necessarybooks of accounts and documente are required to be produce before

assessing officer. The Assessing officer cannot give notice to get the

assessee produced books of accounts relating to 3 years ago

immediate before previous year.

(iii) The notice can be given to produce necessary information in writingand in prescribed manner duly attested.If the assessing officer

requires the particulars of assets and liabilities of assessee, then he

shall have to obtain prior approval from DeputyCommissioner of

Income Tax.


40/153

(b)Audit of Accounts(section 142(2A to 2D)): If the assessing officerconsiders that the nature and complexity of the books of accounts can be

the cause of revenue loss,then he can give the notice to tha assessee

having prior approval from Chief Commissioner or Commissioner of

Income Tax that books of accounts should get be audited from notified

accountant by the Commissioner and audit report of such accountant

within maximum of 180 days and in prescribed form No. 6B should

produced before assessing officer duly signed and attested.

If the books of accounts of assessee are already audited, then

assessing officer can also issue an order for re-audit of books of

accounts.

The Commissioner shall fix the Auditors, remuneration and

audit expenses which shall be payable by the assessee. If the assessee

does not pay the same, then these shall be recovered same as recovery

of Income Tax.

(c)Opportunity of Hearing: If the assessing officer wants to use collectedfacts and materials and information by way of audit for the purpose of

assessment, then he shall give an opportunity to the assessee of being

heard.

Estimate by Valuation Officer in certain cases(Section 142A)

(i) If, for the purposes of making an assessment or re-assessment,the Assessing Officer requires an estimate of the value of anyinvestment/assets referred to in Section 69 or 69A or69B,then he

can appoint a Valuation Officer to make an estimate of such

value and report tha same to him.The valuation officer so

appointed will have all the powers given u/s 38A of Wealth Tax

Act, 1957.

(ii) The Assessing officer may take into account such report inmaking such assessment or re-assessment. However, before

taking into account such report, he will have to give the assessee

and opportunity of being here.

(iii) This section will apply to the assessments made after 30 thSeptember, 2004.

TYPES OF REGULAR ASSESSMENT:


41/153

1) Summary assessment on the basis of return of income(Sec.-143):If an assessee has produced return of income in response of notice u/s

139 and 142(1),then the assessing officer can make assessment on the basis

of such particulars of income without calling the assesse, it is known as

summary assessment. An intimation shall also be given to the assessee, if

any amount of interest arises on the basis of return of income but such

intimation can not be sent after expiry of one year from the year in respect

of which return of income has been submitted.

If on the basis of income any refund of amount towards the

assessee shall be refunded.

If none of the amount is payable or refundable, then

acknowledgement of return of income shall be treated as assessment u/s

143(1).

2) Scrutiny assessment on the basis of evidence(Section 143(2)):

Under this section the assessment has been classified into the following

categories:

a) Limited cases scrutiny u/s 143(2)(i):w.e.f. June 1, 2002 the scheme hasbeen in force. This scheme shall be applied only if the return of income

u/s 139 and 142(1) has been submitted and the assessing officer has

sufficient reasons to be believed that any specific loss, rebate, deduction

or relief are not allowable. In this situation the assessing officer canissue notice to the assessee after the end of one year. In this situation no

refund. Of tax can also be provided.

b) Comprehensive scrutiny u/s 143(2)(ii):If the assessing officerconsiders to verify the return of income produced by the assessee to

determine that the taxable income shown by the assessee is not less than

actual income or tax paid by the assessee is not less than the actual tax

payable by him, then he shall give the notice under this section to

present himself in the office of income- tax with sufficient evidence in

favour of return of income submitted by him. The notice u/s 143(2)(ii)

can not be served after expiry of one year from the month in which the

return has been submitted.

c) Special procedure for assessment in the case of scientific researchassociation, news agency, notified trust etc.(section 143(3)):This


42/153

special procedure is applicable to those assessee, who are required to

submit return of income u/s 139(4C).

1) Scientific research association mentioned u/s 10(21).

2) Newas agencies mentioned u/s 10(22B).

3) Any association or institution mentioned u/s 10(23A).

4)Any institution mentioned u/s 10(23B).

5) Any trust or institution Or University or Hospital mentioned u/s

10(23C).

C) BEST JUDGMENT ASSESSMENT(1) If any person -

(a) Fails to make the return required under sub-section (1) of section 139 and has

not made a return or a revised return under sub-section (4) or sub-section (5) ofthat section, or

(b) Fails to comply with all the terms of a notice issued under sub-section (1) of

section 142 or fails to comply with a direction issued under sub-section (2A) of

that section for getting the account audited, or

(c) Having made a return, fails to comply with all the terms of a notice issued

under sub-section (2) of section 143, the Assessing Officer], after taking into

account all relevant material which the Assessing Officer has gathered, shall,

after giving the assessee an opportunity of being heard, make the assessment ofthe total income or loss to the best of his judgment and determine the sum

payable by the assessee on the basis of such assessment:

Appeal against best judgement assessment: If the assessee is not satisfied by the

assessment done by assessing officer then he can appeal before the commissinor (appeal). If

he is not satisfied by the decision given by the commissioner (appeals), then he can appeal to

appellate tribunal. If any leagel point involves in the matter, then appeal can be made to high

court.

Discretionary best judgement Assessment(section 145(3)):If the assessing officer is not

satisfied from the accuracy of books of account or assessee does not have any regular system

to keep the books of account, then the assessing officer, best of his mind can assess the

income. Books of accounts cannot be rejected on the basis of their complicacy. An appeal

can be made before commissioner (appeal) against the assessment under this section.


43/153

Protective assessment:-In case of any dispute of ownership of income under the provision

of clubbing of income, the assessing officer will include such income in the income of both

the assesses till the final settlement. After final settlement one asessee will have to pay tax

on such income and income already included in the income already included in the income

of other assesser will automatically cancelled.

D) REASSESSMENTIf the Assessing Officer has reason to believe that any income chargeable to tax

has escaped assessment for any assessment year, he may, subject to the provisions of

sections 148 to 153, assess or reassess such income and also any other income chargeable to

tax which has escaped assessment and which comes to his notice subsequently in the course

of the proceedings section 147, or recompute the loss or the depreciation allowance or any

other allowance, as the case may be, for the assessment year concerned (hereafter in this

section and in sections 148 to 153 referred to as the relevant assessment year).The proceeding of re-assessment can not be done after expiry of 4

years from related assessment year. But under following circumstances re-assessment can be

made even after expiry of 4 years:

a) An income has escaped assessment on income of not submitting return of Income by theassessee u/s 139;or

b) Income escaping on account of not submitting return of income in reference of notice u/s142(1) and 142(8);or

c) Income escaping on account of non-disclosure of complete and correct informations.The following shall also be deemed to be cases where income chargeable to

tax has escaped assessment, namely:-

(a) Where no return of income has been furnished by the assessee although his total

income or the total income of any other person in respect of which he is assessable under

this Act during the previous year exceeded the maximum amount which is not chargeable

to income-tax;

(b) Where a return of income has been furnished by the assessee but no assessment has

been made and it is noticed by the Assessing Officer that the assessee has understated the

income or has claimed excessive loss, deduction, allowance or relief in the return;

(c) Where an assessment has been made, but

(i) Income chargeable to tax has been under assessed; or

(ii) Such income has been assessed at too low a rate; or

(iii) Such income has been made the subject of excessive relief under this Act; or

(iv) Excessive loss or depreciation allowance or any other allowance under this

Act has been computed.


44/153

ISSUE OF NOTICE WHERE INCOME HAS ESCAPED ASSESSMENT(Section 148):

(1) Before making the assessment, reassessment or recomputation under section 147, the

Assessing Officer shall serve on the assessee a notice requiring him to furnish within such

period, as may be specified in the notice, a return of his income or the income of any other

person in respect of which he is assessable under this Act during the previous year corresponding

to the relevant assessment year, in the prescribed form and verified in the prescribed manner and

setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so

far as may be, apply accordingly as if such return were a return required to be furnished under

section 139.

(2) The Assessing Officer shall, before issuing any notice under this section, record his reasons

for doing so.

TIME LIMIT FOR NOTICE(Section 149):

The notice u/s 148 shall not be issued after expiry of the following period:1) If an income escaping assessment of the related assessment year is less then

Rs. 1 lakh and 4 years have already elapsed after such assessment year.

2) If income escaping assessment is Rs. 1 lakh or more and 4 years after relatedassessment year have elapsed but within 6 years.

3) If the person to whom notice has been issued to an agent of non-resident, then2 years has alredy elapsed.

Exceptions:

According to section 150,the time limit as stated above shall not apply under the

following circumstances:

1) When re-assessment is to be made under an appeal or revision or an order orproceedings by the court.

2) If the time period of re-assessment has been determined at the time if giving directionfor re-assessment under appeal or revision, then the assessing officer shall make re-

assessment within the time limit so prescribed.

PERMISSION FOR ISSUING NOTICE(Section 151):

If the assessment of an assessee has been done u/s 143(3) and 147, then notice for re-

assessment cannot be served by the assessing officer below the rank assistant commissioner and

deputy commissioner but the joint commissioner of Income-Tax satisfies by the reason given by

assessing officer regarding re-assessment, then he can order for a notice to be issued.

TIME LIMIT FOR COMPLETION OF ASSESSMENT AND RE-

ASSESSMENT(SECTION 153):


45/153

1) An order for assessment u/s 143 and 144 cannot be served after expiry of 2 years fromrelated assessment year.

2) Reassessment or assessment procedure u/s 147 must be completed within a period of 1year from end of such financial year in which notice u/s 148 is obtained.

Under the following circumstances the time limit for assessment,reassessment and

re-computation cannot be applied:

(i) Assessment u/s 250,254,263 and 264 in reference to comply under an appeal.(ii) Re-assessment of a partner on account or re-assessment of a firm u/s 147.(iii) In case of rectification of mistakes.

RECTIFICATION OF MISTAKES(SECTION 154):

It may be possible that an Income-Tax authority may commit a mistake while passing the order

of assessment,appeal, revision, etc. with a view to rectifying any mistake, apparent from therecord, the income-tax authority empowered as under:

1) An order issued by himself under this Act may be revised.2) Issue of Notice u/s 143(1) can be revised or an amount of refund accepted can be

increased or reduced.

3) This type of mistake can be rectified by the related officers with in the 4 years from endof such financial year in which an order for revision is revised.

4) This revision can be made by the officer on finding such mistakes or when an applicationis given by the assesseein this respect. Any mistake relating to an order of

Commissioner(Appeals) shown by an assessing officer can be revised.

5) The period of 4 years shall be computed from the date of an order in which rectificationis to be made, not from the date of issue of original order.

NOTICE OF DEMAND(SECTION 156):

When any tax, interest, penalty, fine or any other sum is payable in consequences of

any order passed under the Income-Tax Act, the Assessing Officer shall serve upon the assessee

a notice of demand in Form No. 7 specifying the sum so payable.

Further as per section 220(1) the amount specified in the notice of demand should be

paid within 30 days of the service of notice at the place and to the person mentioned in thenotice. However, the Assessing officer in some cases, with prior approval of Joint Commissioner

can ask the assessee to deposit the amount in less than 30 days.

INTIMATION OF LOSS:

Where in the course of the assessment of total income of any assessee,it is established

that loss has taken place which the assessment is entitled to have carry forward and set off under


46/153

the provisions of section 72(1) or section 73(2) or section 74(1) & (3) , then the assessing officer

shall notify the assessee by an order in writing, u/s 157 the amount of such loss computed by

him.

(B) APPEALSIf an assessee is not satisfied with the order or assessment of the Assessing Officer, he may file

an appeal against the such order or assessment. Alternatively he can apply the commission of

Income Tax for revision of the order of the assessing officer. The first appeal against the order of

the assessing officer shall lie with the commissioner(appeal). Either the assessee or the Assessing

officer is not satisfied with the order passed by the commissioner (appeal), they can appeal

against the order to Appellate Tribunal. Against an order passed by Appellate Tribunal can be

appealed to High Court and similarly, appeal against the order of High Court can be filed to

Supreme Court.

Following is the procedure when one makes appeal:

A- APPEALS TO THE DEPUTY COMMISSOINER (APPEALS) AND COMMISSIONER(APPEALS) {Sec.246-251}

B- APPEAL TO THE APPELLATE TRIBUNAL {Sec.252-255}

C- APPEALS TO HIGH COURT {Sec.260A- 260B}

C-APPEALS TO THE SUPREME COURT {Sec.261-262}

D- REVISION BY THE COMMISSIONER {Sec.263-264}

APPEALS TO THE DEPUTY COMMISSOINER (APPEALS) ANDCOMMISSIONER

Section 246A

APPEALABLE ORDERS BEFORE COMMISSIONER (APPEALS)


47/153

Any assessee aggrieved by any of the following orders (whether made

before or after the appointed day) may appeal to the Commissioner (Appeals) against-

1) An order against the assessee where the assessee denies his liability to be assessedunder this Act or an intimation under sub-section (1) or sub-section (1B) of section

143, where the assessee objects to the making of adjustments, or any order of

assessment under sub-section (3) of section 143 or section 144, to the income

assessed, or to the amount of tax determined, or to the amount of loss computed, or

to the status under which he is assessed;

2) An order of assessment, reassessment or recomputation under section 147 or section150;

3) An order made under section 154 or section 155 having the effect of enhancing theassessment or reducing a refund or an order refusing to allow the claim made by the

assessee under either of the said sections;

4)

An order made under section 163 treating the assessee as the agent of a non-resident;

5) An order made under sub-section (2) or sub-section (3) of section 170;6) An order made under section 171;7) An order u/s 201 under which the assessee has been deemed to be an assessee in

default for failure to deduct TDS or to get depsited TDS.

8) An order made under section 237 relating to refunds.9) An order imposing a penalty under -

a) Section 221; or

b)Section 271,section 271A, section 271F, section 271AA or section 272BB;

10)An order of assessment made by an Assessing Officer under clause (c) of section158BC, in respect of search initiated under section 132 or books of account, other

documents or any assets requisitioned under section 132A on or after the 1st day of

January, 1997;

11)An order made by a Deputy Commissioner imposing a penalty under section 271C,section 271C or section 271D or section 271F

12)An order for assessment or re-assessment u/s 153AExplanation: For the purposes of this sub-section, where on or after the 1st day of

October, 1998, the post of Deputy Commissioner has been re-designated as Joint

Commissioner and the post of Deputy Director has been re-designated as Joint

Director, the references in this sub-section for "Deputy Commissioner" and "Deputy

Director" shall be substituted by Joint Commissioner" and "Joint Director"

respectively.

APPEAL BY PERSON DENYING LIABILITY TO DEDUCT TAX(U/S 248):


48/153

Any person having in accordance with the provisions of sections 195 and 200 deducted and

paid tax in respect of any sum chargeable under this Act, other than interest, who denies his

liability to make such deduction, may appeal to the Commissioner (Appeals) to be declared not

liable to make such deduction.

PROCEDURE FOR FILING APPEAL(SECTION 249 AND RULES 45 & 46):

1) The appeal should be filed in form no. 35 and it should also be verified in the prescribedmanner.

2) The appeal shall be presented within thirty days of the following date, that is to say, -

(a) Where the appeal relates to any tax deducted under sub-section (1) of section 195, the

date of payment of the tax, or

(b) Where the appeal relates to any assessment or penalty, the date of service of the notice

of demand relating to the assessment or penalty: Provided that, where an application has

been made under section 146 for reopening an assessment, the period from the date on

which the application is made to the date on which the order passed on the application isserved on the assessee shall be excluded, or

(c) In any other case, the date on which intimation of the order sought to be appealed

against is served.

3) The Commissioner (Appeals) may admit an appeal after the expiration of the said period if

he is satisfied that the appellant had sufficient cause for not presenting it within that period.

4) No appeal under this Chapter shall be admitted unless at the time of filing of the appeal, -

(a) Where a return has been filed by the assessee, the assessee has paid the tax due on the

income returned by him; or

(b) Where no return has been filed by the assessee, the assessee has paid an amount equal to

the amount of advance tax which was payable by him:Provided that in a case falling under clause (b) and on an application made by the

appellant in this behalf, the Commissioner (Appeals) may, for any good and sufficient

reason to be recorded in writing, exempt him from the operation of the provisions of that

clause.

5) An appeal is required to be made in duplicate. The first copy of the appeal shall be

accompanied by a fee of court by way of stamps. The memorandum of appeal, statement of

facts and the grounds of appeal should be accompanied by a copy of the otder appealed

against and the notice of demand in original.

small taxpayers perception about income tax laws in india

Documents