Income Tax: Introduction and Important Definitions
Income Tax: Introduction and Important Definitions
Income Tax: Introduction and Important Definitions
INCOME TAX
INTRODUCTION AND IMPORTANT DEFINITIONS
INTRODUCTION
.
Income tax is a very i mport ant di rect tax. It 1s . . .
an importa nt and most e1gn1fic.·ant source of
revenue of th e govern ment The , 1-.,,
country· safe ard th ·. governm ent needs money to maintai n law and order 1n tu~
th '1 ~ e security of the country from foreign powers and promote the welfare of
8
d ~ pe~~:· ince our govem ~ent is wedded to socialistic pattern of society it is the foremost
u_ Y O
e govern ment to bring out such welfare and development program mes which will
bndge e gap betwee n the rich and the poor. An this require s mobilisation of funds from various
th
sources. Th~se sources may be direct or indirect. Income tax, being a direct tax, is an importa nt
~ool to achieve ba_lanced socio-economic growth by providing concessions and incentiv es in
mcome tax for vanous develop mental purposes.
Who is liable to pay Income tax
. . ~v~ry person, ~hose taxable income for the previous financial year exceeds the minimu m taxable
limit IS liable to pay mcome tax during the current financial year on the income ofthe previous financial
year at the rates in force during the current financial year.
BRIEF HISTORY OF INCOME TAX IN INDIA
(1) In India, this tax was introdµ ced for the first time in 1860, by Sir James Wilson in order
to meet the losses sustain ed by the Govern ment on accoun,t of the Military Mutiny of 1857.
(2) In 1886, a separat e Income Tax Act was passed. This Act remaine d in force upto 1917,
with various amendm ents from time to time.
(3) In 1918 a new Income T~ Act was passed and again it was replaced by another new
Act which was ~assed in 1922. This Act remaine d in force up to the assessm ent year 1961-62
with numero us amendm ents.
(4) The Income Tax Act of 1922 ~ad become very_ comp~icated on account ~ ~~ra ble
amendm ents. The Govern ment of India, th~refore, referr~d 1t to the Law Coll!~s 1on m ~956
with a view to simplif y and for the prevent ion ?ftax evasion. The Law Co~1ss 1on ~bmitt ed
·t rt · S tember 1958 ' but in the meantim e the Government oft India had appoint ed the
1 s repo 1n ep • t t · · · · ·
Direct Taxes Admin istratio n Enquir y Comm1tte~ .o suggee. measure~ o ~ m~vem en-
ces to assesse es and to preven t evasion oftax . Thh1s CommT1tteeActsub1m916tt1ed its reportd m 1959. In
. •th h Ministr y of Law fina11y t e 1ncome ax , was passe .
consult ation wi t ; Act 1961 has been brought into force with effect from 1st April, 1962.
(5! The Income ax India and Sikkim (including Jammu and Kashmir).
It applies to the whole of 1 mendm ents of far-reaching nature have been made in the Income
(6) Since 1962 severa a
Tax Act ~y the Fina~c e Act nd everyJ:a~av e also been made by various Amendment Acts, for
(7) Beside~ this, am~ m~men t Act, 1984,. Direct Taxes Amendment Act, 1987, Direct
instanc e, T~atio n Laws Amenf and 1989 Direct Tax Law (Second Amendment) Act, 1989
O 1988
Truces Law (Amend ment) Acts dment) Ad 199i. The amendm ents in the Finance Acts,
and at last The Taxatio n Law ~e~h e recomm~ndations of Chelliah Committee Report.
1992 and 1993, are mostly base on
~==----~~~~=--
2_
-- - - -- - -- -= == =J1N~c@
(8)
As a mat ter of fact
o~ME[!t~AxC.~~~~~- - - -. -----~ ---- --~
, t
h Income Tax Act, 1961, whi
e
£
ch came into force on ~.st April, 1962
d d widely. It has , there ore,
become very comphcated both~ '
d d re-a men e Ot
bas been ame n?e anthor itie s and the tax-payers.
the administenng au X
nACTERISTICS OF INCOM E TA . .
CHAIV"\ . .
. . a Direct True. Direct Tax me ans suc h tax wh ich 1s pai d by a perso
D' t 7bx Income is
;· =
l. ,rec ~ n
who bea rs ~ lb'lbx er~come Tax is imposed db Cen tral Go ver nm ent .
and rec ~ve r~o tal income. Tot al inc om e is also
7bta l.In com e. Income Tax is calcula~~ ~~ called
bi . the pro visi ons of Inc om e Ta~ ~t.
me Total income is calc ulat ed accord1 g 'b
taxa e,;:;~',,.,pted Lim it. If income
d lim it of inc om e, the n tax is imposed
4 excee~s .Pre ;~n ~e Tax-exempt lim it of
Tax is. not imposed upto the tax-exempte.d income for t~
hm1t o inco .
Assessment Year 2018-19, a_re a~ follows. 'd ~
(A) Sen.or Citizen : Seruor citizen (res t en int. Ind ia) who is of the age of 60 yea rs or more
'
bu.t less than 80 years f 3,00,000.
(B) Super Senior Citizen : Sup er sen . 't' n (res ide nt in Ind ia), who is of the age
of 80
ior c1 ize
years or more f 5,?0?000. HU F As . t'
(C) Oth er lndiVIduals, , soc1~ ion ofpe rso ns. Bod y of Ind ivid ual f 2,50,000.
(D) Firm, C?mpany, Local TBodY_ : N1tl.
'mp
5 Progressive 7bx Rat es. ax 1s no 1 ose d at the. sam e rate on the tota l inc_om
_, e of an
• •. HUF AOP or BOI. Tax rate s incr eas e wit h an
-dual· . • Min im t
~di vi .' ~cr e~s e 1n mco me. um ax rate
is 5% and max unu m tax te ·
ra 1s 30 -10. Firm s' and com pan ies' mco mes are tax ed at the rate of
ot.
3
0%.6 _Sur cha rge . Surcharge is imposed on the
am oun t of inc om e tax . Sur cha rge rate s are
follows fur the Assessment Year 2018-19. as
(i) For individuals, HUF, AO P or BO . .
I:@ 10% if tota l mco me exc eed s 50 lak h
does not exceed 1 crore rup ees .@ 15% if tota rup ees but
l inco me exc eed s 1 cro re rup ees .
(ii) For Firms :@12% if tota l income
exceeds 1
(iii) For Domestic Company :@7% if tota l inco cro re rup ees .
me exc eed s 1 cro re rup ees but doe s not exce
lO crore rupees. @ 12% if tota l income exceed ed
Note: In abov s 10 cro re rup ees .
e all three conditions, provision of mar gina
l relie f will
also be appl icab le.
7. &lu catw n Cess and Sec ond ary and Hig her
Edu cat ion Ces s. All ass ess ees are liable
pay education cess @ 2% and secondary and to
hig her edu cati on ~ss @ 1% on the tota l amo
income tax including surcharge. unt of
8. Tas- Bun kn. Tax is imposed at pro gre ssiv
therefore rich person bea r more tax bur den . e rate on the inc om e of ind ivid ual and HUF
9. Adm iniB trat ion. Tax is imposed and reco
vered by inco me tax dep artm ent . Income
Department works und er the control of Cen tral
Boa rd of Dir ect Tax es (CBDT).
Tax
lO. Aliot:ati.on of Amount of Inc ome Tax. The
government ~ allo ca~ d among Cen tral Gov tota l am oun t of inc om e tax recovered by
ern men t and Sta te Go ver nm ent acc ord ing
~ecommendatwn of Finance Commission. Sta to the
mco ~e tax revenue from the following amo unt te Gov ern men t wil l not be giv en any share of
s:
(~~ Income tax amo unt recovered from companies.
(~~ Amount of surcharge.
(m) Amount of education cese and SHEC.
(1) Cla ssif y the inc om e und er eac h of the abo ve five ·
hea ds and the n ded uct fro m the inc om e
und er eac h hea d the ded uct ion s per mis sib le und er
the Act in res pec t of tha t hea d of inc om e. Th e
bal anc e of am oun t left und er eac h hea d of inc om e
is its ass ess abl e inc om e.
(2) Tot al of the ass ess abl e inc om e. of eac h hea d and
inc om es is call ed the Gro ss Tot al Inc om e. the agg reg ate of all the se ass ess abl e
(3) Fro m the Gro ss Tot al Inc om e, thu s arri ved at, ded
sec tion s BOC to BOU of the Act for com put ing the tota uct the ded uct ion s per mis sib le und er
l inc om e. The bal anc e left afte r sub tra ctin g
the allo wab le ded uct ion s is call ed the Tot al Inc om e.
(4) The am oun t of inc om e tax pay abl e is the n cal cul
the rat es pre scr ibe d by the Fin anc e Act for the rele van ate d on thi s tota l inc om e acc ord ing to
t ass ess nie nt yea r and the rat es pre scr ibe d
und er diff ere nt sec tion s of the Act .
IMPORTANT DEFINITIONS
Under sections 2 and 3 of the Income Tax Act, 1961, definitions of important terms used in
the Act have been given, some of which are as under :
INCOME [Sec. 2(24)]
This is a very important term as income tax is charged on the income of a person. This term
has not been defined in the Income Tax Act, except that it states as to what is included in income.
Under this section income includes:
(i) profits and gains;
(ii) dividend;
(iii) voluntary contributions received by (a) a trust created for charitable or religious
purposes, or (b) by a scientific research association, or (c) by a games or sports
association or institution, or (d) any university or other educational institution, or
(e) any hospital or other institution, or (f) an electoral trust;
(iv) the value of any perquisite or profits in lieu of salary taxable under the head 'salaries';
(v) any special allowance or benefit specifically granted to the assessee to meet his
expenses wholly, necessarily and exclusively for the performance of his duties;
(vi) any allowance granted to the assessee either to meet his personal expenses at the place
where he performs his duties or compensate him for the increased cost of living, for
example, City Compensatory Allowance;
(vii) the value of any benefit or perquisite which is obtained by any representative assessee;
(viii) any sum chargeable to income tax under the head 'business' or 'profession';
(ix) any capital gains;
(x) the profits and gains of any business of insurance carried on by a mutual insurance
company or by co-operative society;
(xi) any winnings from lotteries, crossword puzzles, races including horse races, card-games
and other games of any sort or from gambling or betting of any form or nature whatsoever;
E. l :.nation : . . . . -d-id to tui_v pl1l'Mtl l\ by Ul'llW of lolFi ''t' I
\:~ a . ' includes winnings ft·om prizes uw.:u o
(a) Lottery . 'Y
t·1 • mann er whntsoever:
chance or m any O J.l el .· . f ' ~ ,e' '1'\clt1des t\J\Y gofi\O 1-i lwwi
. '" ""t•1, if• I
lhl (!) 1,(11 ill lll l\t1 11t
(b) "Card game and oth~r.ga1ne o any s?t ·1od 'n whioh pooplo compt.,to ·to Witt 11rlv,o
e on televis ion or electro mc m · e,
1
programm . . . k
or any other similar grune, , . lo:vees us oontl'ibutions to nny [J1'tJVitlont
(xii) any sum receive d by ~ e ! ssd ess~e frof1!1 h~ss:~~~P ~tnder the Employoos' Stttto h\aln·u1tct1
fund or supera nnuati on ntn 01 any un ,
th ft d for the welfare of such employee s ,
Act or any o . er ind k . urance policy including the 1:mm C'Ocoivod by Why
(xiii) any sum received un er a ey111an ins
,
of bonus on such policy. . b r - tl
~ insuran ce policy means a life insw·nnce pobcy tu 1ten Y n P0 son on 1(l llfo
0
t~:.e r person who is or was (a) an employee of the fi rst pers<,n, or (b) connoc l;t,d
in any manne r with the busine ss. . , . .
The sum of keyma n insura nce policy is assess able as followi ng · ",. _
(a) When the sum is received by the organi sation, who has 1:8ken th e poll<.'Y, it 1a aaaeaanblo
under the head profits and gains of busine ss or p1"?fi:ss10n. ... .
(b) When the amoun t is received by the employ ee, 1t 1s assess able as profits
1n h8u of
(c) ~~-th e amoun t is received by a person , where employer-emp loyee relationshlp
does not subsis t (Chair man or Direct or etc. of a con1pany ), it is assessable under the
head income from other sources.
(xiv) The profits and gains of any busine ss of bankin g (includ ing provid
ing credit facilitie1:1)
carried on by a co-operative society with its membe rs;
(xv) Any consideration received for issuing shares as exceeds the fair marke t value of the
eh.area,
(xvi) Any sum of money received as an advanc e in the course of negoti
ations for transfer of
a capital asset and such negoti ation fails, the amoun t so forfeite d;
(xvii) If the assesse e receives (in cash or kind) the following from the
Centra l Government
or a State Govern ment or any author ity or body or agency it will be tr eat ed as income
:
Subsidy or grant or cash incenti ve or duty drawb ack, or waive r or conces sion or
reimbu rsemen t.
However, if such subsid y or grant or reimbu rsemen t is taken into accoun t for deter•
minati on of the actual cost of the asset, it will not be treated as income .
The subsidy or grant by the Centra l Gover nment for the purpos e of the corpus of
a
trust or institu tion establi shed by the Centra l Gover nment or a State Govern ment,
will not be treated as income.
. . The LPG subsid y and other welfar e subsid ies receive d by individ uals shall not be
m~~ - included
...
0
(Press Release, dated 5,5,2013 )
(xvm) Any ~um ~ money or value of proper ty receive d withou t consid eration or for inadeq
uate
consideration by any person from any person or person s on or after 1 4 2017 (For details
see chapte r 12). · ·
(xix) Compe nsation or other paym t d · d •
te • ti f . en , ue or receive by any person 1n • · h
connec tion with
rmmt
there o.a on ° his employ ment or modifi cation of the terms and
t e
condit ions relating
[(xx) The fair marke t value Of · t
treated as 'tal inven ory as on the date on which it is conver ted into, or
, a cap1 asset (w.e.f. A.Y. 2019-2 0) ]
CONCEPT OF INCOME .
The above definition of income is 0 t
are ordinarily treated as incom
1 ·
from definite sources with some :~: ;ctgul,
t
c?nc
1 · • . ·h
usive. It includ es some other receip ts also w~c
inco~e means a monet ary incom e which is denved
0
re arity or expect ed regula rity. These definite sources
7
INCOME TAX (INTRODUCTION AND IMPORTANT DEFINITIONS)
of incoi_ne are : Salaries, Income from House Property, Profits and Gains of Business or
Profession, Capital Gains and Income from Other Sources. nnder :
Besides this, there are some other important rules regarding income, which are as
(1) There should be a definite source of income.
(2)An income earned, whether legally or illegally, is taxable under th~ Income Tax Act. The
Income_Tax ~ct does not make any distinction between legal and illegal income. H_owever, any
expenditw:e mcurred to earn an illegal income is allowed to be deducted out of sue~ m~ome only.
(3) It is not necessary that the income should be received regularly and penodically, s3:y,
":eekly, monthly or quarterly. Lump-sum received can also be income, provided it is income m
view of other factors and considerations.
(_4) Income should be received from outside. In an institution, if the ipcome from subscription
~om its members exceeds its expenditure on its members the excess cannot be treated as taxable
mcome, because the subscription was received from amongst the members themselves and the
excess !epresents the excess of income over expenditure incurred for their own benefit or
well-bemg, hence this excess is not received from outside, and will not be income.
Similarly, excess over expenditure, received by a club from facilities provided to members
as part of advantages attached to such membership, is not taxable income.
[CIT vs. Bankipur Club Ltd. (1997) 226 ITR 97 (SC)]
(5) It is not essential that the income must be received in the form of money. Receipts in
kind or service having money equivalent can also be income~
(6) Temporary or Permanent Income. Whether the income is temporary or permanent, it is
immaterial from the tax point of view.
(7) If an assessee has earned an income but has not actually received it, it will be treated
as the income of the assessee, because he is entitled to receive it.
(8) Reimbursemen t ofexpenses is not income. Reimbursemen t of actual travelling expenses
to an employee is not his income.
(9) Where under a legal obligation a charge is created on the income of a person, then to
the extent of such charge it will be deducted from his income.
(10) Receipt on account of dharmada, gaushala, etc. is not inc~me.
(11) Pin Money received by wife for her personal expenses and small savings made by a woman
out of money received from her husband for meeting household expenses is not her income.
(12) Disputed Income. Any dispute regarding the title of income will not postpone or held
up the assessment of such income. It will be taxed in the hands of the recipient of such income.
{13) Diversion of income vs. Application of income. Diversion of income means that the
income is diverted to some other person under some legal obligation. If after receiving the
income it is given to someone else it is application of income. Similarly, if an income is diverted
to some other person voluntarily it is application of income. Where by an obligation, income is
diverted before it reaches the assessee, it.is diversion of income and not taxable; but where the
income is required to be applied to discharge an obligation after such income reaches the
assessee the same is merely an application of income and tax liability cannot be avoided.
(14), Income may be in plus or minus. Minus income means loss, hence losses are also
included in the term 'Income'.
GROSS TOTAL INCOME [Sec. 80B(5)]
The aggregate of the income under the following heads is known as gross total income :
(i) Income from salaries;
(ii) Income from house property; .
(iii) Profit and gains of business or profession;
(iv) Capital gains; and
(v) Income from other sources. . . . .
Th · der each head is comput.ed after making deductions permissible under that head.
F~~~:i;:~ro ught forward losses shall be deducted (as provided in the Act) to arrive at
the assessable income.
- - - ------
- - - - - ----
~~~ ,
AGRlCUUURAl INCOME
Se e ch ap te r on ~a ricultu
ral In co m e~.
CASUAL INCOME
Any re ce ip t wh ich is. . d
smtl inrome is th at in coof a ca su al 81:" n o n. -~·~an at ur ei sc as ua l m . ~ In -~ - - . :;,__
· ~
m e th e re ce ip t of which IS .de nt al an d w ith ou t an_.v supri!~ri.~
: :W nai tu re
· of an .un~=~::r- __
fro
nn m gs mloH, ,,.~ · p~ es1 ,~ us
--l
ace1
~.~~.
o'" ' and
o. .u .a .= other munes
c::. ft
religious or any other ground an assessee wants to continue to close his accounts on a date different from 31st
March, he can do so. However, he would be required to make up his accounts on 31st March also, for the purpose
of submittin g the Income tax Return.
The meaning of the term previous year can be better understood by the following illustrat ions :
2
AGRICULTURAL INCOME
AGRICULTURAL INCOME 2
[Sec. (l~)]
The meaning of the term agricultural income can be exp l . d with the help of the following
a1ne
cha rt:
Agricultural Income
-1,
A B C
(i) Any rent or revenue derived (i) Any income derived from such land by Any inco me from a farm
from land, (ii) which is situated agricultural operations or (ii) any yro~ess house.
in India and (iii) is used for by cultivator or receiver of rent-m-kind,
agricultural purposes. which renders the produce fit for the
market or (iii) the sale of such produce.
Note : Capital Gains arising from the transfer of agricultur
al land shall not be treate~
as agric ultur al inco ~e.
If the following conditions are satisfied the income from
land 1s trea ted as agn cult ura l
income:
1. The land must be situated in India. If the land
is situ ated outside India, the income
from such land will not be treate<;l, as agricultural inco
2. Land must be used for agricultura} purposes. It mea me.
ns, tilli
sowing of the seeds, planting and similar operations on ng of the land, wat erin g it,
by the assessee. the land mus t be carr ied out
3. The receiver of income from the land mus t have inte
rest
tenant or usufructuary mortgagee of the land has inte in the land. The land lord or
rest in the land.
If a person purchases a standi:r:ig crop and after cutt
the profit is not agricultural incpme. ing it, sells it and mak es prof it
4. The direct income from agriculture, is trea ted as '
agricultural income. An indi rect
income from _a~culture, is not agricultural income.
For
mana~er or dividend from a company engaged in agricult example, sala ry of a farm
tural income. ural activities is not agricul-
'
KINDS OF ,AGRICULTURAL INCOME
(1) Rent or revenue deri ved from . When one person
his land for agricultural purposes the land
former receives fr
t t ·
or kind) in consideration of such ~ser. Such rent or reve gran s o ano ther a righ t to use
(2) Income from nom ~hte latttedr ren t o: reve nue (in cash
agri cult ural operations It means cul ue is rea e as agn cult al ·
. . . ur income.
watering it, sowing of the seeds, planting
Products which grow wild on the land or a
and
similar b~a bon of a field, tilli ng of the land,
r°perat1ons on the land .
human labour or skill upon the land are not re
therefrom is not agricult
ural income.
J
~pontaneous growth not involving any
pro uc 8 of agriculture. The income derived
(3) Income from mak ing prod uce '/it fi
~eld and the cultivator or receiver ofre nt-f ~-~ ~ke t. :th
ere
or ~arket, any income from such activity is al pe~ orm is no mar ket of the produce of the
s an:y activity to mak e the produce fit
cunng of coffee, flue curing of tobacco, ginning:~ ~:~ ultu
ral ;111come. The process employed in
n, etc., is such a process.
AGRICULTURAL INCOME
(4) Income from sale of produce. Income derived by a cultivator or receiver or ren1rin-~d
from the sale of produce raised or received by him is treated as agricultural income, even if he
keeps a shop for the sale of such produce.
(5) Income from a farm howre . The income from a farm house is treated as agricultural
income if the following conditions are satisfied :
(i) the building is owned and occupied by the cultivator or receiver of the rent or revenue
of any such land~
(ii) it is situated on or in the immediate vicinity of the agricultural land;
(iii) the building is, by :reason of his connection with the land, used as dwelling house or a
. store-house or an out-house by the cultivator or receiver of rent-in-kind;
(iv) the land is situated in urban area and is either assessed to land revenue in India or
is subject to a local tax assessed and collected by the officers of the government.
l~the land if'evenue or local tax is not payable on such land :
(1) The land is situated. in 'non-urban' area·1 or
(ii ) The land is situated within municipality or cantonment board jurisdiction, has a
population of le.ss than 10 000· or
(iii) The farm building is not situated within the area specified below, the income derived
from such building shall be agricultural income:
The land is not situated in any area within the distance, measured aerially :.
(a ) not being more than two kilometres from the local limits and which has a population
more than ten thousand but not exceeding one lakh; or
(b ) not being more than six kilometres from the local limits and which has a population of
more than one lakh but not exceeding ten lakh; or
(c) not being more than eight kilometres from the local limits and which has a population
more than ten lakh.
(6) Income from saplings or seedlings. The income derived from saplings or seedlings grown
in a n ursery shall be deemed to be agricultural income.
IMPO,RTANT POINTS REGARDING COMPUTATION OF AGRICULlURAl INCOME
( 1) Agricultural Income by way of rent or revenue derived from land which is situated in
India and is used for agricultural purpose is computed as ifit were income chargeable to income
tax under the head 'Income from Other Sources'.
(2) Agricultural Income from Agricultural building is computed as if it were income
chargeable to income tax under the head 'Income from ·House Property'.
(3 ) Any other agricultural income is computed as ifit were income chargeable to income tax
under the head 'Profits and Gains of Business or Profession'.
Not,e : If payment exceeding t 10,000 has been made under (1) or (3) without account payee che'ltle Ol' account payee
bank draft or use of electronic clearing system through a bank account, even than the whole amount shall ~
allowed as a deduction.
(4) Any sum payable by the assessee on account of any tax levi.ed by the State Government
on the agricultural income shall be deducted in computing the agricultural income.
(5) Where in respect of any source of agricultural income there is a loss, such loss shall be
set-off against any other source of agricultural income.
(6) Where the assessee is a member of an as~oc~ation of per~ons or body of individuals and
his share in the agricultural income of the association or body 1s a loss, such loss shall not be
set-off against any other agricultural in.come of the ~ssessee. . .
(7) If there is loss from agriculture, 1~ can be earned foi:'Yard and set-offagamst agncultural
income in the following eight years provided the return of income has been filed and such loss
has been determined by the Assessing Officer. . . .
(8) Where the net result of the computatio':l made 1n: accord~nce with these r:iles 1s a loss,
the loss so computed is ignored and the net agricultural mcome 1s dee~ed to be ml.
(9) The net agricultural income is rounded-off to the nearest multiple of rupees ten.
24 INCOME TAX
Non-Agricultural
In co m es fro m Land .
T he following incom fr om la nd us ed fo r
es, ar e no t de ri ve d ag ri cu lt ur al pu rp
ar e no n- ag ri cu lt ur os es , hf;;ntf! th.f:?
al in co m es :
(i) In co m e from m
(ii ) In co m e from
ar ke ts ; .
st on e qu ar ri e~ ;
(iii) In co m e from
m
(iv) In co m e from la in in g ro ya lt ie s ; . • ul tu ra l pr od uc e;
nd
(v) In co m e from su us ed for storu~g ~g n~ n
pp
for ir ri ga ti on from ly of w at er for im ga b~ Jurp ? os es (e.g ., in co m e
(vi) In co m e fr om se a tu be -w el l or w el l, as it oe s 0 t in vo lv e an y ag ri cu lt ur al op er at ion,
fr om supply o fw
~
lf -g ro w n gr as s, tr ee .
(v ii) In co m e from
(v ii i) In co m e fr
fi sh er ie s;
s or ba m bo os , '
om th e sa le of ea rt .
(i.~) Remune1·a
tion re ce iv ed as m h fo r b ri c k -m ~ g;
an ag al fa rm ·
(x ) D iv id en d fr
om a co m pa ny en ga er of an ag nc ul tu r ,
(x i) In co m e of ge d in ag ri cu lt ur e;
th e bu ye r of a ri pe
crop
da ir y fa rm , po ul tr ;
(x ii) In co m e fr om
(x iii ) In co m e fr
om in te re st on ar re y fa rm in g, etc.; an d
Illustration 1 ar s of re nt of ag ri
cu lt ur al la nd .
S ta te w he th er th e
following in co m e fr
no t: om la nd si tu at ed in .
In di a ar e ag ri cu lt
(i) In co m e fr om ur al m co m e or
in te re st on ar re ar
pu rp os es . s of re nt pa ya bl e in
re sp ec t of la nd us
(ii ) In co m e fr om ed fo r ag ri cu ltu ra
us e of la nd fo r gr az l
(ii i) In co m e fr om in g of ca tt le re qu ir
le as e of la nd for gr ed fo r ag ri cu lt ur al
(iv) In co m e fr om sa az in g of ca tt le re qu pu rs ui ts .
le of fo re st tr ee s ir ed fo r ag ri cu lt ur al pu rs ui ts .
th ei r pr es er va ti on
an d gr ow th w er e pe of sp on ta ne ou s gr ow th on w hi ch
(v) In co m e fr om in rf or m ed . so m e op er at io ns for
te re st on si m pl e m
(v i) N ot io na l in or tg ag e of la nd us
co m e fr om a ho us ed fo r ag ri cu lt ur al
oc cu pi ed by th e as e pu rp os es .
se ss ee for th e su pe si tu at ed ne ar th e ag ri cu lt ur al fa
vi lla ge 10 ki lo m et rv is io n of th e fa rm rm an d ow ne d an
re fr om th e city. N ac ti vi ti es . T he fa rm d
(v ii) In co m e fr om o la nd re ve nu e or is si tu at ed in a
ag ri cu lt ur al la nd si lo ca l ta x is le vi ed on th is fa
(v iii ) Pr iz e fr om tu at ed in P ak is ta n. rm .
th e G ov er nm en t on
(ix ) A m ou nt of co ac co un t of hi gh er
m pe ns at io n re ce iv yi el d.
du e to flood. ed fr om In su ra nc e
C om pa ny on ac co
Solution un t of lo ss of cr op
(i) It is ~ t ~g ri cu lt
pa y t~.e re1;lt 1n t~ ur al in co m e as it is
e. no t di re ct ly co nn ec
te d w it h la n d b u t
(n ) It 1s ag ri cu lt ur _[CIT vs. Raj~ B~ ha du r Ka m ak ha ya Na ra in w it h fa il ur e to
al in co m e as 1t 1s an Si ng h & Others (1
94
... . . ag ri cu lt ur al ac ti vi 8) 16 IT R 32 5 (PCD)
. . ty .
(1n) It 1s _a gn ~u [C IT vs. R.B. Ra ja Sh am
of ca tt le or gi ve s 1t ltu ra l in co m e. It is im m at er ia l w he
sh er ja ng Ba ha du r
(24 IT R = A IR 19 53
. on le as e fo r th e pu rp os e. th er th e as se ss ee All. 676))
•
(1v) It 1s no t ag ri. cu • us ed th e la n d fo r
lt ur al in co m e as ba [P Ch el l · h Pi ll azing
si c op er at io ns of cu · .
ai a ai vs . C IT (1 6 gr
. lt iv at io n h IT R 350)l
(v) It 1s no t ag ri.cu . . [~ ah ar aj a of Ka pu t b
av e no ee n pe rfi d
lt ur al in co m e as 1t rt la vs. C IT (13
IT R 7 4 = A IR 19 45 or m e •
1s no t de ri ve d frha om th l d b fr O ud h 35))
(vi) T he la nd is si tu .
at ed in no n [bC/T e an u t om th e m or tg ag or
no t on th e la nd . vs. SlmHKameshwar
Si ng h M ah ar aj a of .
, th e no ti on al in co -u r an ar ea . en ce D ar bh an ga
m e of ag ri cu lt ur al b w he IT
\d . th
(vii) A gr ic ul tu ra l er la n d (2 R 10711
la nd is no t si tu at ed . h b
(viii) It is no t ag ri in In di a h tu i~ g re ve nu e as ee n pa i'd 0 r
cu lt ur al in co m e du is ex :m pt .
(a) T he in co m e is e to th ri' en ~e m
no t fr om la nd ; or co m e 1s no t ag ri cu
e O11ow in g re as on lt ur al in co m e.
s:
l.. • I
- - - - - - - - - - - - -AGRICULTURAL INCOME
- - - - -- -------------
(b) The income is not from use of land for agricultural purposes; or
(c) The income is not from sale of agricultural produce. . . l
(ix) It is agricultural income. The compensation is received on account ofloss of agncu tu,ra1
income. [CIT vs. B. Gupta. (1ea) Put. Ltd. (1969) 74 I.TR 337 (Cal.) I
Illustration 2
State with reasons whether the following are agricultural income:
(i) Income from the sale of the replanted trees where the denuded parts of the forest are
replanted and subsequent operations in forestry are carried out.
(ii) Income from the sale of trees of forest which are of spontaneous growth and in relation
to which forestry operations alone are performed.
Solution
(i) It is agricultural income as these trees are not of spontaneous growth but have been replanted
and subsequent operations in forestry were carried out. (CIT vs. Raja Benoy Kumar Sahas Roy)
(ii) It is not agricultural income as it is derived from the sale of trees of spontaneous growth.
Here there are no basic operations like tilling of soil, sowing and planting. The subsequent
operations for conservation and improvement of such trees do not constitute agriculture.
Illustration 3
A Sugar factory crushed 41,000 quintal of sugarcane during the previous year out of which
6,000 quintal of cane was produced on its own farm at a cost of~ 13,20,000. The remaining
sugarcane was purchased from the market at the following rates :
20,000 quintal@ ~ 279 per quintal
5,000 quintal@ ~ 282 per quintal
10,000 quintal@ ~ 288 per quintal
During the previous year the factory earned a total profit of~ 5,00,000. You are required to
determine separately the agricultural and non-agricultural income.
Solution
Cost of Sugarcane purchased from the market : Cost
~
20,000 quintal@ f 279 per quintal 55,80,000
5,000 quintal@t 282 per quintal 14,10,000
10,000 quintal@ f 288 per quintal 28,80,000
98,70,000
. ~
98 70 000
Average Market Pnce = = ~ 282
35 000
' farm :
Market value of cane produced on own f
(6,000 X 282) 16,92,000
Less : Cost of cane grown on own farm 13,20,000
Agricultural Income 3,72,000
Total Profit 5,00,000
Less : Agricultural Income 3,72,000
Non-Agricultural Income 1,28,000
Hence, Agricultural Income 3,72,000
and Non-Agricultural Income 1,28,000
PARTLY AGRICULTURAL INCOME
Sometimes there is composite income, which is partially agricultural and partially non-
agricultural. For determining the non-agricultural income chargeable to tax, the market value
of any agricultural produce which has been raised by the assessee and which has been utilized
as a raw material in such business, shall be deducted. No further deduction shall be made in
respect of cost of cultivation incurred by the assessee as a cultivator.
- - - - - - - - - -- -ININiocoiM~E]TA~X__
__ __ _ --- .
26
For this pur pos e, ma rke t va l ue s h a 11.be dee me d be :
di aril to. sol d in the ma rket, t l10 v a 1ue calculotecl
{:I
(a) wh ere the agr icu ltur al pro?-uce is h 1:1t ha~
according to the ave rag e pnc e at w c 1 . bee n so sol d, dur ing the rel eva nt previoufi
year; or .
(b) wh ere the agr 1cu ltur ~ pro duce is . t ord ina rily sol d in the ma rke t the aggreg
no . . ate of
the following sha ll be its ma rke t val ue •
(i) the exp ens es of cul tiva tion ; .
(ii) the lan d rev enu e or ren t pai d for the lan ,
1
hi h it wa s gro wn ; and
(iii) the pro fit wh ich in the opi nio n of the
d o~ w c . aso nab le
As ses sin g Off ice r 18 re ·
Examples
(1) Pro fits of suc h Sug ar Fa cto ries wh
ich pro duc e sug a~ fro m can e grow1;1 on th ·
far ms , are tre ate d as par tly agr icu ltu ral inc eir own
om e. Su gar can e 1s ge°:erally_ sol d in th e ma
Hence, in ord er to sep ara te the agr icu ltu ral rket.
inc om e fro m the bus ine ss inc om e, the av~
ma rke t pri ce of sug arc ane dur ing the rel eva nt rage
pre vio us yea r sha ll be cha rge d as an. exp end
and no not e wil l be tak en of the exp ens es iture
of cul tiv atin g the sug arc ane . Th e inc om e
det erm ine d will be the bus ine ss income. thus
(2) Income from gro win g and ma nuf act uri ng of
Tua. Six ty per cen t of the inc om e der ive d
the sale of tea grown and ma nuf act ure d by the sell from
er in Ind ia is dee me d to be agr icu ltu ral inc om e
the rem ain ing forty per cent is tak en as bus ine ss and
income.
( 3) Inc om e fro m gro win g and ma nu fac
tur ing of cen trif uge d lat ex or cen ex. Six ty five
per cen t of the incom e der ive d fro m the sal e of cen trif uge d lat ex
pro ces sed by him from rub ber gro wn by him or cen ex ma nuf act ure d or
in Ind ia is dee me d to be agr icu ltu ral inc om
the rem ain ing thir ty- fiv e per cen t is tak en as e and
bus ine ss inc om e.
- ( 4) Inc om e fro m gro win g and ma nu fac
tur ing of Cof fee :
(a) Seventy-five per cen t of the incomer der ive
d fro m the sal e of coffee gro wn and cur ed by
the se~ er in ~d ia is dee me d to be agr icu ltu ral
as bus me ss mcome. inc om e and twe nty -fiv e per cen t is tak en
Cb) Six ty per cen t of the income der ive d fro m the
sal e of coffee gro wn , cur ed roa ste d and
p- o~ ed by_ the sel ler in Ind ia, ~t h or ~th ou
t mix ing of chi cor y or oth ~r fla vou rin g
m~ edi ent s 1:' dee1!1ed to be agn cu: ltur al mc om
tak en as bus me ss mcome. e and the rem ain ing for ty per cen t is
13
RESIDENCE AND TAX LIABILITY
BASIS OF CHARGE
An Hf4iwimoo trrny ourn hiu itJcmr1H in Jndht nr out-ffid~ India r,r at both the pla..res. Which
in como f~ HHH<JHfHlbJo iri Jndia depend~ on the r~uick~;tjaJ Hfatu~ of an a s ~ -
RESIDENCE OF ASSESSEES
. . 'rh~ Hcorw of i?laJ inwrrui of an a8He8s-ee along with hm residential status is determined
1
~ th r,-!iC"rcn.cc to h 11, rc01dcnoo in India in the prev-iotIB year. P ~ and c.,i tizen3hip are two
d1ffor(..,nt as pee ta. rrhc incid{,iftce of tax haH nothing to do with citizenship. <Sec. 5)
An lnd1an may be ncm-reffident and a for4,~goor may be resident fur income tax purposes.
The residL-ltlce of a per8on may change from year to year but citizenship cannot be changed
every year.
A person may be resi<l£"llt in more than one country fur the same previonB year.
Different Types of Residents (Sec. 6 ,)
On the basis of residence the a,gsessees are divided into three categories, uiz. :
(l) Persons who are resident in India, popularly known as ordinarily r esident.
(2) Persons who are not ordinarily resident in India.
(3) Persons who are non-residc"llt.
'rypes of residents can be illustrated with the help of the following chart :
Types of Residents
,i
i-
Resident Non-Resi.dent
.i
'V
(a) is received or deemed to be received. in India in such year by or on behalf of such person,
whether accrued or arisen anywhere; or
(b) accrues or arises or is deemed to'. \accrue or arise to him in India during such year,
whether received anywhere; or · l '· ·.
(c) accrues or arises to him outside India from a business controlled in or a profession
set-up in India.
m. Incidence of tax in case of Non-Resident. The total income of any previous year of a
person who is non-resident includes all income:from whatever source derived which:
(a) is received or deemed to be received imlndia in such year by or on behalf of such person,
whether accrued or arisen anywhere1; nr
(b) accrues or arises or is deemed to acbrue or arise to him in India during such year,
whether received anywhere.
'Received' -explained : , 1
l
The term 'received' means the receipt of income on the first occasion. The place of its receipt
shall be the place where it is received for the' first time and not the place of its receipt on
1
subsequent remittance. Thus, the foreign income of a non-resident is not taxable even if it is
remitted to India unless it is received or deemed to be received in India.
'Deemed to be recelved'-exp /a/ned: ~' (Sec. 7 and Sec. 8)
'Deemed to be received' means that the income l'ias not been actually received, but it is deemed
to be received under the Income Tax Act. Its instance's ·are :
(i) The annual accretion to the account of any employee participating in a recognised
provident fund is not actually received by the employee but it is deemed to be received during
the previous year by him under the law.
(ii) Taxable portion of transferred balance of unrecognised provident fund is deemed to be
received during the previous year.
(iii) Dividend is deemed to be received in the year in which it is declared but the interim
dividend is deemed to be the income of that previous year in which it is w1conditionally made
available to the shareholder.
(iv) Tax deducted at source.
~=~---------~--='--
_ _ _ _ _ __ __ __ __
~
__ _ INCOM~TAX __
loy ed by the Ce:itra l Go
(v) Where an ind ivi dua l has bee n ern has con trib ute d 11.l t ,e
-ve
rt1"f J'.r/1J
· r,e ntr 1n or 0H.1~, J l // / ,';
h
1
·
SlJMMARy
_Fully Exemp ted Income s at a Glance
(Exclu ding exemp ted income s in relatio n to salarie s)
I terns WIw is .
. entit. led to relief 11.r
1VOtes . .
ICon d itzons
(a) For All Assesse es [not covered under (b) or (c)]:
1. Agricult ural Income. All Assessees. If the taxable income is more than the
minimum taxable limit and the agricul-
tural income is more than f 5,000,
agricultu ral income shall be included for
determin ing the amount of tax payable
on the taxable income.
2. Share of income from Hindu Undivided An individual who is
Family. member of the Hindu Un-
divided Family.
3. Share of income of a partner from his Partners . Share of income shall be compute d by
firm. dividing the taxable profits of the firm in
the agreed ratio of profits.
4. Paymen t under Bhopal Gas Leak Dis- An individual. Provided any deduction has not already
aster Act. been allowed in this connection.
5. Compen sation on disaster. Individual.
6. Life Insuranc e Policy Money. All assessees.
7. Paymen t from Sukanya Samridd hi Individu al
Account
8. Paymen t from Nationa l Pension System Individu al
Trust
9. Partial withdra wal from Nationa l Pen- Individu al
sion System Trust
10. Interest income u/s 10(15).
11. Educatio nal Scholars hips. An individual. Scholars hip should be for meeting educa-
tional expenses.
12. Allowan ces to M.Ps., M.L.As. :
(a) Daily Allowan ces Member s of Parliam ent
or Legislat ure.
(b) Other Allowan ces Member s ofParliame nt.
(c) Constitu ency Allowan ce Member s of Legislatu re.
3. Income of News Agency. News Agency. Provided that : (i) it applies its income
solely for collectiQll or distribution of
news; (ii) it does not distribute its income
to its members.
4. Income of Professional Institutes. Any institution having Provided that, it applies the whole of its
its object the control, su- income 01· accumulates it for application,
pervision, regulation or solely for its objects,
encouragement of the
profession of law,
· medicine, accountancy,
engineering or architec-
ture, etc.
5. Income of Regimental Fund or Non- Regimental Fund or
Public Fund established by the armed Non-Public Fund.
forces for the welfare of their past and
present members on their pependents.
r,
16. Income of Specified Charitable Funds. Concerned Responsible Spedfied funds are : CiJ Following funds
Authority. ofthe Prime Minister: (a ) NationalB elief
Fund, (b) Fund for Promotion ofFolk.Art,
{c) Aid to Students Fund, (d)Natio:na l
Foundation for Corornuna) Hat:mony,
(ii) Fund established for charitable pur"-
pose and Specified Funds are : (a ) Fund
notified by the Central Govt..; (b) Public
Religious and/or Charitable Trust
notified by the Central Gffi'ernmen t.
Educationa l Institution. Its object should not be to earn profit.
Hospital. I ts object should not be to earn profit.
Mutual Fund estab- Should be notified by the Central Govern-
17. Income of Mutual Fund.
lished by any public sec-- ment.
tor bank, public financial
institutiont or authorised
by the Securities and
Exchange Board oflndia
or the RBI.