Scheme Of Taxation

1.2 Scheme of Taxation Every person, whose tolal income of the previous year exceeds the maxinum amount which is not chargeable to income tax, is an assessee and chargeable to income-tax in the assessment year at the rate or rates prescribed in the /F 4ct/Income-tax Act for that relevant assessment year. However, his total incone s residentiat status in India. hall be dcterimined on thc basis of his In other words, income-tax is levied in India in the following manner t. Income earned by every person is chargcable to income-tax provided it exceeds the maximum amount which is no 2, It is charged on the total income of the previous yeur but is taxable in the next following assessment year at the rates . Income-lax is charged at two rates, viz. norma! rates and special raies chargeable to tax i.e. it cxecods the maximm exemption limit applicable to such assessment year. However. there are certain exceptions to this rule Normal tax rates which can be in the form of slab rate or flat rate arc fixed hy the annual Finance A ct but specia rates are given in the Income-ux Aef 4. Tax is charged on the total income computed in accordance with the provisions the Acr Total incomc of a person is determined on the basis of his residemial status in India. ncome of the previous year is chargeable to tax in the assessinent year, but the assessee has to pay come-tax in the same previous year in which income is earned. It is paid in the forim of adrance tax and delhuction propaid taxes) shall be deducted from the of tax eat source (TDS). Suclh tax paid in the previous year (also known as income tax due on iotal income in the assessnent year analysis of the above statement would reveal the following important concepts, which are necessary fr ssee: 3. Assessment yenr, 4. Previous year; 5. Rate or rates of tax: 6. Charge of incume-tax; 7 Further, an understanding the fiamework of the Ineome-tax Act Maximum amonnt which is nnt chargeable to imeome-tax; 8. Total income; 9. Residential st 1.3 Important Concepts al income; 9. Residential status. 1.3a Person [Section 2(31)1 An ndiridanl 40 ng witma &n the a An individuai mears a naural persoa e: a huuman being. I: insludes a nale. letnale, cainor child. lowever, tie incone of a mnor is now gonerally included in the income of a parent. Sometimes the miner is himself liable t tBx on incoiue earaed by him. Since minar is not competent to centract, his income shall be taxabie thrsagh his lagal ) A Hindt mdivided fomily has not been defined uncer the tax aws. However as er the lindu law, it msans a fimily whiuh conaists of nll persons lincalty descended rom a corinon ancestor including their wiics and daughters. For detailed discussion refer Chapter 14 partnership as defincd in the Limited Liab lity Partitership Act, 2008 definitiou, the words ust e vonstruod in thoir plan orcinary meaning. () A tirm shal: have the mcarng assignel w it in t Ineiati Parinership Act, 1932 ane siali inchude a lomitea lithity ) Assoeiution of persons: The Inceme-tax Act does rot def na an assoc nron opersons (ADP). in the abseuce of any Association of persons mears two or more ersong who in for a common purpose with a vicw to enrn an income It nocd not b: on the besis of a contract. Ihetefore, if two or morc persons joizt hands to carry or a business but do nor constitute a pertnersaip, they may be ssessed as an Association of PersorS (AOP) An Associati ul Persuns dnes not menn ny amil every tabatio ol perscns. It is only whin they assnc ate dreitbelves in an income-preaueing activity that they becutne a as-uciatiou of persons. They mst eomhiue to mert mist be ursuaut to the comb ned will ct tte persons constilu.ing the association; there must be a meer ng of the minus, su tw speak. In a nutshell, there must ha a conmon desigm o (e Boa navids 0) means a conglomeratioz of idividiats whe zary on sone activity with frc objectie cauuing sou e income, I: weld consist only of indivicuais, Entiies like conpaties or tirms canner be meribies of a Normally, income-tax shell rot be payahle ny an asessee int respect of the rrcin: of shire e incone by him rer BOUAOP if the tax has alreary hecn paid by such BO ADP Distinction between AOP ad B 1. An AOP ray consist of noo-indixiduals h i a BOl hs to cunsist of iadividnals only. If twe or more persems like lin ompany, T, indiviial tc.) jeun lugethcr, it is callze an AOP. But if orly indiv iuals oi togelhur ulea it is called a ROL For eximni':. wherc X ATsC Ltd and PO & Co. A im) ipin together fo a nanticular venture then they may he rofered lu as an AOP. IfX, Y and 7 juin zogether for a punticular seitue but do nul venstitut; a firm then they niay be referred te as a hodly nf ind yiduals. 2 An AOP i mplics a vol nlary getting together for a common des gn or combined will w engage in en irce will roducing activities, wherss e 150I may or asy not Irae such commen design In caso of AOP as well as Bal, the previsions relating te tomputation of total income atd taxabi ly of such vi A local mithori lue expression nvel authority means )Municipal Coramiuee aad Disriet Board, log ly entitled to, or entrusted ty the Governmant wi.h, tue or nianagemeni of a Municipal or ucal funds; or ) Cantonnient Board ta) Artiiciai widicul perscns are e lities whichi are not naiural persons but re separare entrics ir tte eyes cl aw Thuugh they may tiot be sted drectly in a cnut o law br:t they can be sucé througth persons mansging therr God, idols and deities are utiicia persunms. Though they may not ha sued directly they can he legally sued through the priests or the managing counuittec of ne place of wnship. ete. They are persons and theit incotme, lise offerings and donations, are taxable However, andes the Ineone tax Act. they have been provided exempti fron payment of x under separale prcvisious of the Aer, li vertain rondi.ions mentioned fherem are satisned Similarly, all ntlher artiticial persons. wita a juristia petsonal:ty, will also fall under this categury, if they do not tud within any cf the preveding calegeries of persons eg, iversity of Dellit is an artificial ner-e: as it dees ner fall in any of the six cateyories mentiored above lustration l.I Determine the status of the tollowing Calenita Univerity. Esen Paits wi Tud. () Ihunjnh Burs Ltd ) A and B are lcgal heirs vlC. C died in 3016 A and B cary on his basiness without artsring into n partrership Shu Krishn Fulerpnises, n firm consisung of threc partners S. K znd . uf) A joint farily consisting of P, Mrs. P and theu son S. (ni Mamcipal Corpuration of Delhi.