The basic fundamental concept of income tax is discussed here. The important terms, years and definitions are also mentioned.

2. What is tax ?
Tax is a compulsory extraction of money from people,
by an authority, to be spent for the common benefit of
the society. There are taxes imposed by the Central
government, State governments, local authorities etc.

3. FEATURES OF TAX
• Compulsory payment and refusal to pay tax is a punishable offence
• No direct quid pro quo ( something in return ) between tax payer and the tax
imposing authority
• Payment for an indirect service to be rendered by the government to the
community
• Time and mode of payment is determined by the tax imposing authorities

4. The Income Tax Department is a
government agency undertaking direct
tax collection of the Government of
India. It functions under the Department
of Revenue of the Ministry of Finance.
Income Tax Department is headed by the
apex body Central Board of Direct Taxes

6. OBJECTIVES OF TAXATION
• Generation of revenue needed for the government
• Prevention of concentration of money in the hands of a few
• Increase the habit of savings and productive investment by the people
• Speedy economic development
• Generation of employment opportunities

7. TYPES OF TAX
Direct Tax
Indirect Tax

8. DIRECT TAX
• Tax is levied on a person directly
• Impact and incidence of tax falls on the same person.
• No intermediary in between the government and the tax payer
• It is the duty of the assessee to estimate the tax liability and remit the amount to
the government
• Eg. Income tax

9. INDIRECT TAX
• Tax payer pays the tax through an intermediary
• The government collects indirect tax from people through middlemen like
traders, manufacturers, importers, service providers etc.
• Impact and incidence of tax falls on different persons
• All indirext taxes in India including Excise duty, Service tax, State Value added
tax , Central sales tax etc. were merged into a single tax named GST (Goods and
Service Tax) with effect from 1st July 2017.

10. LANDMARKS IN THE HISTORY OF INDIAN TAX
SYSTEM
• 1860 : Income tax introduced for the first time in India by James Wilson for the
British Government
• 1922 : First Income tax Act was passed in India
• 1924 : Central Board of Revenue Act constituted the Board as a statutory body
• 1944 : Central Board of Direct Tax was formed
• 1957 : The Wealth Tax Act, 1957 introduced
• 1958 : The Gift Tax Act, 1958 introduced
• 1961 : Income Tax Act was passed
• 1962 : Income Tax rules framed

11. • 1964 : Central Board of Revenue was bifurcated and a separate Board for
Direct Taxes known as Central Board of Direct Taxes (CBDT) constituted.
• 1986 : The Income Tax Act and Wealth Tax Act amended
• 1994 : New PAN introduced
• 2002 : Computerised processing of returns all over the country introduced
• 2005 : Fringe Benefit Tax introduced (FBT)
• 2007 : Educational cess introduced to 3%
• 2009 : FBT abolished
• 2011 : Age for senior citizenship reduced from 65 to 60, a new category of
very senior citizens created ( above the age of 80 years)

12. • 2015 : Wealth tax abolished
• 2016 : Rebate under section 87A increased from rs. 2000 to rs.5000
• 2017 : Rebate under section 87A reduced from rs.5000 to rs.2500
• 2018 : 40,000 Standard deduction introduced in place of existing deduction of
rs.19,200 for transport allowances and rs 15,000 for medical reimbursement.
A new ‘cess’ (tax) of 4% has been introduced to cover the health and education
needs of India’s poor and rural population. The ‘Health and Education’ Cess
replaces the Education Cess and the Secondary and Higher Education Cess,
previously taxed at 3%.
• 2019 : Individuals and HUF s with effect from 1st September 2019 , will have to
deduct tax at the rate of 5 percent for payments made to contractors and other
professionals if it exceeds rs. 50 lakhs in a year.

13. BASIS OF CHARGE ( SEC 4)
• Income tax is an annual tax on income
• Income of the previous year is taxable in the assessment year
• Finance Act passed by the Parliament fixes the rate of tax applicable for the
relevant assessment year
• Tax is charged on income of every person
• Tax is charged on the total income of the assessee
• Wherever possible, income tax must be deducted at source or must be paid in
advance

14. INCOME [ SEC 2(24)]
• Profits and gains
• Dividend
• Allowances to meet the increased cost of living
• Income from trade, professional or similar associations
• Cash assistance received from the Government against export
• Key man insurance policy
• Casual Income

16. ASSESSEE [SEC.2(7)]
An assessee is a person by whom tax or any other sum of money is payable
under the Act and includes a person :
a. Who is liable to pay tax
b. In respect of whom any proceeding under the Act has been taken for the
assessment of his income or the income of any other person in respect of which
he is assessable or of the loss sustained by him or by such other person or the
amount of refund due to him or to such other person
c. Who is deemed to be an assessee under the provision of the Act
d. Who is deemed to be an assessee in default under the provision of the Act

17. DEEMED ASSESSEE
A person who is bound to pay tax in respect of the income of another one is called
deemed assessee.
Eg. Tax is payable by a guardian on the income of a minor
Tax is payable by a legal representative on the income of a deceased assessee
In such cases, guardian or legal representative will be deemed to be an
assessee for tax purposes.

18. ASSESSEE IN DEFAULT
When a person liable to comply with the legal requirements
under the Act fails to do so, he becomes an assessee in default.
Also, if a person is required to deduct tax at source and remit the
amount to the government does not do so, he becomes an assessee in
default.

19. Gross Total Income [Sec.80B(5)]
The total of the income of the assessee during a previous year from various
heads of incomes, before making any deduction under Chapter V1 A of the Income
Tax Act ( Sec. 80C to 80U)
Total income [sec.2(45)]
Gross Total income as reduced by the deductions under Chapter V1 A (
sec.80C to 80U) of the Income Tax Act is called Total Income

20. COMPUTATION OF GROSS TOTAL INCOME
Income from Salary xxx
Income from House Property xxx
Profits and Gains of Business and Profession xxx
Capital Gains xxx
Income from other sources xxx
Total xxxx
Less : Adjustments for set off and brought forward losses xx
Gross Total Income xxxx

21. PERSON [SEC.2(31)]
For tax purposes, the term person includes :
1. An individual
2. A Hindu Undivided Family
3. A Company
4. A Firm
5. An Association of Persons( AOP) or Body of individuals (BOI)
6. A Local Authority
7. Every artificial juridical person eg. Universities, Hindu deities

22. ASSESSMENT YEAR AND PREVIOUS YEAR
[Sec.2(9)] Assessment year means a period of twelve months commencing
on 1st April every year. The current assessment year is 2019-20, which commenced
on 1.04.2019 and ends on 31.03.2020. Income of the previous year is assessed
during the assessment year.
[Sec.3] Previous year means the financial year immediately preceeding the
assessment year. For example, the current assessment year is 2019-20 and the
previous year relevant to it is 2018-19, which commenced on 1.04.2018 and ended
on 31.03.2019

23. ACCELERATED ASSESSMENT
Assessment made during the previous year itself. Situations in which accelerated
assessment is done :
1. Income of a non-resident from shipping business (Sec.172)
2. Income of a person leaving India (Sec.174)
3. Income of an AOP or BOI or artificial juridical person (Sec.174 A)
4. Transfer of property to avoid tax (Sec.175)
5. Discontinuance of a business or profession (Sec.176)

24. RESIDENTIAL STATUS
• RESIDENT AND ORDINARY RESIDENT
• RESIDENT AND NOT ORDINARY RESIDENT
• NON - RESIDENT

25. RATES OF TAX
Senior citizens – upto 60 years of age
Total income upto rs 5,00,000 Nil
Total income rs 5,00,001 to 10,00,000 20%
Total income above rs 10,00,000 30%