Friday, 3 January 2020

Unit 1: Income Tax: Basic Framework

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Unit 1: Income Tax: Basic Framework


Every country generates income from ‘Income Tax’ in the form of direct tax levied by government.

Income tax plays a vital role in the economy of every country in the world.

Income tax act was enacted in the year 1961.


Income, in general, means a periodic monetary return which accrues or is expected to accrue regularly from definite sources.

Corporate Tax Planning
The “tax net” refers to the types of payment that are taxed, which included personal earnings (wages), capital gains, and business income.

The rates for different types of income may vary and some may not be taxed at all.


Tax rates may be progressive, regressive, or flat.

A progressive tax taxes differentially based on how much has been earned.


A tax system may use different taxation methods for different types of income.


The Indian Income Tax department is governed by the Central Board for Direct Taxes (CBDT) and is part of the Department of Revenue under the Ministry of Finance.


The Government of India imposes an income tax on taxable income of individuals, Hindu Undivided Families (HUFs), companies, firms, co-operative societies and trusts (Identified as body of Individuals and Association of Persons) and any other artificial person.

Levy of tax is separate on each of the persons.


Income tax is to be charged at the rates fixed for the year by the annual Finance Act.


Income from agricultural sources will be included in ‘total income’, to determine tax-liability.


The levy is governed by the Indian Income Tax Act, 1961.


Assesse: He/She is a person by whom any tax or any other sources of money is payable.

Body of Individuals (BOI): It denotes the status of persons like executors or trustees who merely receive the income jointly and who may be assessable in like manner and to the same extent as the benefit carries individually.

Company: A voluntary association formed and organised to carry on a business.

Direct Tax: A tax that is paid directly by an individual or organisation to the imposing entity Dividend: Dividends are payments made by a corporation to its shareholder members.

It is the portion of corporate profits paid out to stockholders.

Flat Tax: A flat tax (short for flat tax rate) is a tax system with a constant marginal rate, usually applied to individual or corporate income.

Gross Total Income: It is an individual’s total personal income before taking taxes or deductions into account.

Income Tax: An income tax is a tax levied on the income of individuals or businesses (corporations or other legal entities).

Income: Income is the consumption and savings opportunity gained by an entity within a specified timeframe that is generally expressed in monetary terms.

Indirect Tax: Indirect taxes are those paid by consumers when they buy goods and services.

Progressive Tax: A progressive tax is a tax in which the tax rate increases as the taxable base amount increases.

Regressive Tax: A regressive tax is a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases.

Surcharge: A surcharge is an extra charge added to the price of something, or a standalone charge that exists for using something.

Tax Net: It refers to the types of payment that are taxed and include personal earnings (wages), capital gains, and business income.






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