Business Taxes 3-6.pdf yes nogvvvvvvvvvvvvvvvv

Business Taxes 3-6.pdf yes nogvvvvvvvvvvvvvvvv

1. BUSINESS TAXES
IIM Rohtak | 2025

2. FACULTY PROFILE
A banker-turned-academician, Prof (Dr) Naveen Sirohi is the Founding Head of
School of Finance & Management and IEPFA Chair Professor at Indian Institute of
Corporate Affairs (IICA), a think tank of the Government of India. Possessing a
unique blend of 20+ years of experience across corporate, academia and
government, he is contributing to the success of the corporate sector in India
through the mandate of capacity building, education, research and consultancy.
After holding various managerial positions in the banking industry across both public
and private banks, he moved to academia and is now contributing to provide
academic and administrative leadership to the School.
He has conducted 100+ Executive Education Programmes catering to 5000+ corporate executives and
government officials on contemporary financial and leadership themes across levels (induction, middle and
top management) and across geographies (India and abroad). As a public edu-preneur, Dr Sirohi has launched
various novel academic initiatives with end-to-end ownership from program ideation, to design, marketing and
delivery like IICA Valuation Program, Masters in Financial & Economic Crimes, Arbitration Course, Mediation
Course, Advanced Management Programme in Corporate Affairs.
Prof Sirohi is also the Director of Forum of Indian Regulators (FOIR) Centre at IICA which is the knowledge,
research and capacity building hub for the Central and State Government regulators in India. He is also
providing support to various priority initiatives of Government of India like financial literacy, financial
inclusion and financial reporting working closely with concerned government bodies/departments like IEPFA,
IPPB, NFRA. He contributed inputs and was acknowledged for the same in the Economic Survey 2021-22. In the
past, he also handled the additional charge of Chief Financial Officer (CFO). Prof Sirohi is a visiting faculty in
various reputed institutions including National Centre for Good Governance (NCGG), Rashtriya Raksha
University (RRU), National Institute of Communication Finance (NICF), Gujarat National Law University (GNLU),
Investor Education and Protection Fund Authority (IEPFA), Department of Posts – GoI, NTPC Power
Management Institute, BHEL etc.

3. SESSION 1-10

4. DISCUSSION FLOW
Introduction to public finance
Why taxes? Role of taxes in the economy
Tax planning - concept, types & techniques
Tax planning dilemma
WHY managers need to know the principles of
tax planning?
Tax planning in action
Important principles & concepts in tax laws
Goals of an ideal tax structure
Tax rates and taxation models/structures
Evolution of tax systems
Overview of direct and indirect taxes
Basic Concepts & Rules of Income Tax
Income Tax Law Ecosystem
Definition & Relevance of Assessee
Changeability of Tax on Income
Assessment and Previous Year
Residential Status & Incidence of Tax
Basis of Taxability - Receipt or Accrual
Capital & Revenue - Receipt & Expenditure
Exemptions and Deductions
5 Heads of Income
Computation of Income under 5 Heads
Income from Salaries
Income from House Property
Capital Gains - ST & LT
Income from Business and Profession
Income from Other Sources
Computation of Total Income
Filing of ITR
Assessment Procedure

5. INTRODUCTION TO PUBLIC FINANCE
3 dimensions of finance
Role of the government in market economy
Need for public finance
Important concepts
Government expenditure (union, state & local / current & capital)
Government revenue (taxes, fees, borrowings )
Budget deficit (high expenditure, low revenue, economic slowdown)
Public goods (why private sector often underprovides)
Market failures (externalities, information asymetry, monopolies)
Role of the government in resource allocation
Correcting market failures
Redistribution of income
Stabilisation of economy

6. WHY TAXES?
Source of government revenue
Funding public services (schools, hospitals, infra, social welfare schemes)
Economic development
Social development (linked to above)
Redistribution of wealth (with rich paying more for benefit of poor)
Macroeconomic stability
Government legitimacy / political stability
Managing behaviour on both sides (sin taxes like on gambling, tobacco to
restrict or subsidies & inputs to generate a push factor)
Correcting market failures (Pigouvian taxes on activities that generate
negative externalities like pollution)

7. TAX PLANNING - CONCEPTS & TECHNIQUES
Conflicting perspective of tax payer and tax collector
Objectives of tax planning
Reduction of tax liability
Minimisation of litigation
Productive investment
Healthy growth of the economy
Economic stability
Generic Techniques / Methods to minimise tax liability
Tax evasion
Tax avoidance
Tax planning
Tax management
Prof Naveen Sirohi

9. TAX MANAGEMENT
Refers to compliance with statutory provisions
Its mandatory (as against tax planning which is optional)
Includes maintainance of accounts, filing of returns, payment of taxes,
deduction of tax at source, timely payment of advance tax etc.
Non-compliance may result in severe consequences
Prof Naveen Sirohi

10. QUIZ TIME
Explain with reasons whether the following
transactions are tax planning, tax evasion or tax
management:
An individual tax payer makes a deposit of Rs.
50,000 in tax saving deposits.
1.
A company deposts the PF / NPS contribution of
employees along with employer contribution on
monthly basis before due date.
2.
A company under-reports its income by not
reporting cash transactions to optimise its tax
liability.
3.

11. ANOTHER CLASSIFICATION OF TAX PLANNING STRATEGIES
Creation
It involves plans that take advantage of tax subsidies - product-based, location-based
Conversion
It involves changing operations to more tax-favoured categories of income or assets
Shifting
It involves moving accounts being taxed to more favourable tax-accounting periods. For
example accelerated depreciation
Splitting
It involves splitting the tax base among two or more tax payers to take advantage of
different tax rates
Fraud
Same as evasion

12. TYPES OF TAX PLANNING
Short-term tax planning
Minimizing tax liability for the current tax year
Strategies involve actions taken within a single tax year to reduce taxable income or
increase deductions
Examples: Timing of income and expenses to shift income to a lower tax bracket,
maximizing deductions (such as charitable contributions), taking advantage of tax credits.
Long-term tax planning
strategies designed to minimize your overall tax burden over several years or even a
lifetime.
It often considers the impact of major life events (such as marriage, retirement, or
inheritance) on your tax situation
Examples: Tax-advantaged retirement accounts, estate planning to minimise estate taxes,
tax-efficient investment strategies, asset allocation to minimise capital gains taxes.

13. TAX PLANNING DILEMMA
Whether minimising taxes should be the goal of tax planning?
Short-sighted and lop-sided approach as taxes are only one factor in the mix
of costs and other factors towards profit and wealth creation
Only focus on saving taxes may result in less or nil focus on increasing sales,
improving product or producing goods / services more efficiently
Strategies that reduce taxes are rarely cost free. For example, changing
operations (say operating through multiple entities) often result in long-term
administrative costs
Tax laws are volatile with frequent (and many a times dramatic &
unpredictable)
Prof Naveen Sirohi

14. WHY MANAGERS NEED TO KNOW PRINCIPLES OF TAX PLANNING
Different response at different times, in different organisations and for
operations in different countries
Optimising an organisation’s total tax burden is important for its success
Managers are key decision makers in the organisation
Taxes impact organisation success financially as operational decisions are
beased on risk-adjusted net present valule of expected after-tax cash flows
Compliance necessity
Multi-national corporations / cross-border transactions angle
Capital market link for listed companies
Senior management compensation aligned to earnings via stock prices
Prof Naveen Sirohi

15. TAX PLANNING IN ACTION
Business Dilemma - As part of its strategy on moving into the entertainment industry,
Seagram’s management wanted to purchase MCA (who owned Universal Pictures and
themed parks) from Matsushita Electrical Industrial Co. With many options to finance
the acquisition, which option should Seagram choose?
Deal - Seagram chose to sell 156 million shares it held in DuPont back to DuPont.
Why? One of the main reason to do this was that by having DuPont redeem the shares,
the transaction could be treated for US tax purposes as a primarily tax-free dividend
to Seagram (rather than a taxable sale).
Impact - Reporting $9 bn sale as dividend saved Seagram at least $1.5 bn in taxes.
DuPont also benefitted by acquiting a big chunk of its own shares at a discount from
market price (approx $740 million)
Year 1990s Players

16. GOALS OF AN IDEAL TAX STRUCTURE
Equality
Taxpayer should bear a fair level of tax relative to their economic condition
Horizontal equity (same) is maintained in both individual and corporate taxation
Vertical equity (varying/progressiv) is maintained in individual taxation
Certainty
Taxpayer knows when, how and how much tax is to be paid
Convenience
Taxes should be levied at the time most convinient to the taxpayer to make the payment
Economy
Taxes should have minimum compliance and administrative costs
They should require minimum of time and efforts of taxpayers

17. TAX RATES
Marginal
Tax rate payable on next rupee of income / slab
Average
It is equal to total tax divided by total tax base
Effective
It is equal to total tax divided by economic income
Strategic importance
Example - For FY 23-24, the taxable income of ABC Corp was Rs.
50,000. It sells some inventory on last day resulting in net gain
/ taxable income of Rs. 20,000. The financial accounting
earnings of the firm during the FY was Rs. 1,00,000.
SLABS
Upto Rs. 50,000 15%
Above Rs. 50,000 25%
Answers
25%, 17.9% and 12.5%

18. TAX RATE STRUCTURES / MODELS
Proportional (or Flat)
Average tax rate remains same as the tax base increases
Other than income tax, most taxes are proportional (like property tax)
Progressive
The average rate increases as the tax base increases
Most income tax systems are progressive
Regressive
The average rate decreases when the base increases
GST may be considered as regressive. HOW?
The total GST paid by a taxpayer is divided by his income
In case of a higher income, the average tax paid will come down
Link with
vertical equity

19. IMPORTANT PRINCIPLES & CONCEPTS IN TAX LAW
Ability-to-Pay Principle
Tax is based on what a taxpayer can afford to pay
Accordingly, tax is generally levied on net income
Pay-As-You-Go Concept
Related to the ability-to-pay principle
Taxpayers must pay part of their estimated annual tax liability througout the year
Example - TDS (tax deducted at source)
Tax-Benefit Rule
If a taxpayer received a refund of an item for which it previously took a tax deduction
(and received a tax benefit), the refund becomes taxable income in the year of receipt
Example - A corporate pays a consulting firm Rs. 1,00,000 as fee and book it as
deductible expense. Next year, the consulting firm realises mistake of over-billing and
refunds Rs. 25,000 to the corporate. The refund becomes taxable in next FY.

20. IMPORTANT PRINCIPLES & CONCEPTS IN TAX LAW
Substance over Form
Under the doctrine of substance over form, even when the form of a transaction
complies with a favourable tax treatment, if the substance of the transaction is the
intent to avoid taxes, the form will be ignored
The tax consequences of a transaction are determined by its economic reality, not just
its legal form
A powerful tool to avoid tax evasion
Example 1 Improper Asset Valuation - A company sells an asset to a related party at a
significantly undervalued price. While the sale is legally valid, department might adjust
the sale price to reflect the asset's fair market value, resulting in a higher taxable gain.
Example 2 Disguised Dividends: A company pays its owner a large "loan" that's never
repaid. While legally it being a loan, if the economic reality is that it's a distribution of
profits, the department can treat it as a dividend subject to dividend tax rates.

21. DIRECT AND INDIRECT TAXES
Direct taxes
Levied directly on the income or wealth of individuals or corporations
Major direct taxes in India are income tax (on individuals and
corporations), corporate tax, and capital gains tax.
Indirect taxes
Levied on goods and services, with the tax burden often passed on to
the consumer
Major indirect taxes in India are GST and customs duty
Prof Naveen Sirohi

22. EVOLUTION OF TAX STRUCTURE
The evolution of India's tax structure, encompassing both direct and
indirect taxes, is a long and complex journey, spanning from ancient
times to the present day.
India's tax system has evolved from rudimentary forms in ancient times
to a complex, multi-layered structure today.
The system has undergone significant reforms, particularly with the
introduction of GST, reflecting the country's economic growth and
changing policy priorities.
However, challenges remain in ensuring efficient administration,
compliance, and equitable distribution of the tax burden.

23. EVOLUTION OF TAX STRUCTURE
Ancient Period
Early references to taxation in India are found in ancient scriptures like Manusmriti
and Arthashastra.
These texts describe taxes being levied on various sources of income and wealth,
with rates varying based on factors like social status & economic capacity.
Agricultural income was taxed at a lower rate than other forms of income.
British Raj
The formal introduction of income tax in India occurred in 1860 under the British
Raj, primarily to offset financial losses incurred during the 1857 Mutiny.
This initial system categorized income into four sources: landed property, trade and
profession, salaries and pensions, and securities.
Subsequent acts in 1886, 1918, and 1922 refined & expanded the income tax system.

24. EVOLUTION OF TAX STRUCTURE
Post Independence
The Income Tax Act of 1961, which remains largely in effect today, consolidated and
significantly revised the tax structure.
This act categorized taxable income into five heads: salary, business or profession,
capital gains, house property, and other sources.
Agricultural income remained exempt from taxation.
Prof Naveen Sirohi

25. EVOLUTION OF TAX STRUCTURE
Indirect Taxes
The evolution of indirect taxes in India is equally significant. Initially, indirect taxes
included excise duties, stamp duties, and customs duties.
Post-independence, sales tax and service tax were introduced.
A major reform was the introduction of the Goods and Services Tax (GST) in 2017.
GST replaced a complex web of multiple indirect taxes levied by both the central
and state governments, aiming for simplification and improved efficiency.
The GST system, while aiming for simplification, has faced challenges in
implementation and compliance.
Despite these challenges, GST has had a positive impact on the Indian economy,
increasing tax revenue and improving transparency.

26. Source: Business Standard & PIB Release

27. PRE-SESSION ACTIVITY

29. BASIC CONCEPTS & RULES OF INCOME TAX
Income Tax Act, 1961 is the primary legislation governing income tax in India
It's a complex act, but understanding its core principles is crucial for tax
compliance

30. BASIC CONCEPTS & RULES OF INCOME TAX
Income Tax Act, 1961 is the primary legislation governing income tax in India
It's a complex act, but understanding its core principles is crucial for tax
compliance
The Act aims to levy tax on the income of individuals, Hindu Undivided
Families (HUFs), firms, companies, and other entities
The fundamental principle is that income earned within India or by Indian
residents from sources worldwide is taxable

31. BASIC CONCEPTS & RULES OF INCOME TAX
Income Tax Act, 1961 is the primary legislation governing income tax in India
It's a complex act, but understanding its core principles is crucial for tax
compliance
The Act aims to levy tax on the income of individuals, Hindu Undivided
Families (HUFs), firms, companies, and other entities
The fundamental principle is that income earned within India or by Indian
residents from sources worldwide is taxable
There are two main tax regimes: the old regime, which allows various
deductions and exemptions, and the new regime, which offers lower tax rates
but fewer exemptions
Taxpayers can choose the regime that best suits their financial situation

32. 5 HEADS OF INCOME
The Income Tax Act categorizes income into five heads
Income from Salary: This includes salary, bonuses, perquisites, and pensions
received from employment.
Income from House Property: This covers rental income from properties, with
different rules for self-occupied and let-out properties
Income from Profits and Gains of Business or Profession: This includes profits from
any business or profession, after deducting allowable expenses. Maintaining accurate
books of accounts is essential for calculating taxable income under this head
Income from Capital Gains: This arises from the sale or transfer of capital assets like
stocks, real estate, or gold. Capital gains are classified as short-term or long-term,
with different tax rates based on the holding period and asset type
Income from Other Sources: This is a residual head, encompassing income not
covered under the other four heads,

33. 5 HEADS OF INCOME
The Income Tax Act categorizes income into five heads
Income from Salary: This includes salary, bonuses, perquisites, and pensions
received from employment.
Income from House Property: This covers rental income from properties, with
different rules for self-occupied and let-out properties
Income from Profits and Gains of Business or Profession: This includes profits from
any business or profession, after deducting allowable expenses. Maintaining accurate
books of accounts is essential for calculating taxable income under this head
Income from Capital Gains: This arises from the sale or transfer of capital assets like
stocks, real estate, or gold. Capital gains are classified as short-term or long-term,
with different tax rates based on the holding period and asset type
Income from Other Sources: This is a residual head, encompassing income not
covered under the other four heads,

34. 5 HEADS OF INCOME
The Income Tax Act categorizes income into five heads
Income from Salary: This includes salary, bonuses, perquisites, and pensions
received from employment.
Income from House Property: This covers rental income from properties, with
different rules for self-occupied and let-out properties
Income from Profits and Gains of Business or Profession: This includes profits from
any business or profession, after deducting allowable expenses. Maintaining accurate
books of accounts is essential for calculating taxable income under this head
Income from Capital Gains: This arises from the sale or transfer of capital assets like
stocks, real estate, or gold. Capital gains are classified as short-term or long-term,
with different tax rates based on the holding period and asset type
Income from Other Sources: This is a residual head, encompassing income not
covered under the other four heads,

35. 5 HEADS OF INCOME
The Income Tax Act categorizes income into five heads
Income from Salary: This includes salary, bonuses, perquisites, and pensions
received from employment.
Income from House Property: This covers rental income from properties, with
different rules for self-occupied and let-out properties
Income from Profits and Gains of Business or Profession: This includes profits from
any business or profession, after deducting allowable expenses. Maintaining accurate
books of accounts is essential for calculating taxable income under this head
Income from Capital Gains: This arises from the sale or transfer of capital assets like
stocks, real estate, or gold. Capital gains are classified as short-term or long-term,
with different tax rates based on the holding period and asset type
Income from Other Sources: This is a residual head, encompassing income not
covered under the other four heads,

36. 5 HEADS OF INCOME
The Income Tax Act categorizes income into five heads
Income from Salary: This includes salary, bonuses, perquisites, and pensions
received from employment.
Income from House Property: This covers rental income from properties, with
different rules for self-occupied and let-out properties
Income from Profits and Gains of Business or Profession: This includes profits from
any business or profession, after deducting allowable expenses. Maintaining accurate
books of accounts is essential for calculating taxable income under this head
Income from Capital Gains: This arises from the sale or transfer of capital assets like
stocks, real estate, or gold. Capital gains are classified as short-term or long-term,
with different tax rates based on the holding period and asset type
Income from Other Sources: This is a residual head, encompassing income not
covered under the other four heads,

37. 5 HEADS OF INCOME
The Income Tax Act categorizes income into five heads
Income from Salary: This includes salary, bonuses, perquisites, and pensions
received from employment.
Income from House Property: This covers rental income from properties, with
different rules for self-occupied and let-out properties
Income from Profits and Gains of Business or Profession: This includes profits from
any business or profession, after deducting allowable expenses. Maintaining accurate
books of accounts is essential for calculating taxable income under this head
Income from Capital Gains: This arises from the sale or transfer of capital assets like
stocks, real estate, or gold. Capital gains are classified as short-term or long-term,
with different tax rates based on the holding period and asset type
Income from Other Sources: This is a residual head, encompassing income not
covered under the other four heads,

38. TAX RATES AND SLABS
India employs a progressive tax system, meaning higher income brackets face
higher tax rates
The tax rates and slabs differ between the old and new tax regimes and also
vary based on age (below 60, 60-80, above 80)

39. TAX RATES AND SLABS
India employs a progressive tax system, meaning higher income brackets face
higher tax rates
The tax rates and slabs differ between the old and new tax regimes and also
vary based on age (below 60, 60-80, above 80)
The new regime generally offers lower rates but fewer deductions
Budget 2025 introduced significant changes, including a higher rebate limit
under the new regime

40. TAX RATES AND SLABS
India employs a progressive tax system, meaning higher income brackets face
higher tax rates
The tax rates and slabs differ between the old and new tax regimes and also
vary based on age (below 60, 60-80, above 80)
The new regime generally offers lower rates but fewer deductions
Budget 2025 introduced significant changes, including a higher rebate limit
under the new regime
Understanding the applicable tax slabs is crucial for calculating your tax
liability accurately
Additionally, surcharges apply to high-income earners
Prof Naveen Sirohi

41. EXEMPTION, DEDUCTION & REBATE
Tax exemption,
deduction and
rebate are all
options
available to
reduce tax
liability but
they apply at
different
stages and in
different ways.

42. EXEMPTION, DEDUCTION & REBATE
Tax exemption,
deduction and
rebate are all
options
available to
reduce tax
liability but
they apply at
different
stages and in
different ways.

43. DEDUCTIONS AND EXEMPTIONS
The old tax regime allows various deductions under Chapter VI-A of the
Income Tax Act reducing taxable income and thereby tax liability.
Section 80C: Deductions for investments in specified instruments like PPF, ELSS, and
EPF (up to ₹1.5 lakh)
Section 80D: Deductions for medical insurance premiums
Section 80E: Deductions for interest on education loans
Section 80G: Deductions for donations to charitable organizations
Section 80TTA/80TTB: Deductions for interest on savings accounts

44. DEDUCTIONS AND EXEMPTIONS
The old tax regime allows various deductions under Chapter VI-A of the
Income Tax Act reducing taxable income and thereby tax liability.
Section 80C: Deductions for investments in specified instruments like PPF, ELSS, and
EPF (up to ₹1.5 lakh)
Section 80D: Deductions for medical insurance premiums
Section 80E: Deductions for interest on education loans
Section 80G: Deductions for donations to charitable organizations
Section 80TTA/80TTB: Deductions for interest on savings accounts
Salaried individuals also have specific allowances and deductions, such as
HRA, LTA, and standard deduction
The new tax regime offers fewer deductions, making it crucial to compare
both regimes before choosing one

45. TAX PAYMENT AND FILING
Tax can be paid through various methods, including
Advance tax,
TDS (Tax Deducted at Source), and
TCS (Tax Collected at Source)

46. TAX PAYMENT AND FILING
Tax can be paid through various methods, including
Advance tax,
TDS (Tax Deducted at Source), and
TCS (Tax Collected at Source)
TDS is deducted by employers from salaries and by payers of other income
TCS is collected by sellers of certain goods from buyers like car, jewellery

47. TAX PAYMENT AND FILING
Tax can be paid through various methods, including
Advance tax,
TDS (Tax Deducted at Source), and
TCS (Tax Collected at Source)
TDS is deducted by employers from salaries and by payers of other income
TCS is collected by sellers of certain goods from buyers like car, jewellery
Individuals must file an Income Tax Return (ITR) annually, declaring their
income and claiming eligible deductions
The due date for filing ITR varies depending on the taxpayer's category

48. TAX PAYMENT AND FILING
Tax can be paid through various methods, including
Advance tax,
TDS (Tax Deducted at Source), and
TCS (Tax Collected at Source)
TDS is deducted by employers from salaries and by payers of other income
TCS is collected by sellers of certain goods from buyers like car, jewellery
Individuals must file an Income Tax Return (ITR) annually, declaring their
income and claiming eligible deductions
The due date for filing ITR varies depending on the taxpayer's category
Penalties are levied for non-compliance, including late filing & underreporting
of income
Online tax calculators and e-filing portals simplify the process

49. SUMMING IT UP
This overview provides a foundational understanding of Indian income tax.
For specific situations or complex scenarios, consulting a tax professional is
recommended.
The Income Tax Act is subject to amendments, so staying updated on the
latest rules and regulations is crucial for accurate tax compliance.
Prof Naveen Sirohi

50. INCOME TAX LAW ECOSYSTEM
A holistic understanding of income tax law in India requires the study of the
following:
The Income Tax Act, 1961 (amended up-to-date)a.
The Income Tax Rules, 1962 (amended up-to-date)b.
Notifications and Circulars, Clarifications issued from time to time by the
CBDT
c.
Judicial decisions d.
Prof Naveen Sirohi

51. PERSON
Section 2(31) provides seven categories of persons chargeable to tax
an individual
a Hindu Undivided Family (HUF)
a company
a firm
an association of persons or body of individuals, whether incorporated or not
a local authority
every artificial juridical person not falling within any of the preceding
categories
The above definition is inclusive and not exhaustive.

52. ASSESSEE
The concept of assessee is central to the Indian income tax system, as it
determines who is responsible for paying taxes & compliance under the Act

53. ASSESSEE
The concept of assessee is central to the Indian income tax system, as it
determines who is responsible for paying taxes & compliance under the Act
An assessee is a person by whom income-tax or any other sum of money is
payable under the Act. This includes anyone involved in income tax
proceedings, whether paying tax, receiving a refund, or being responsible for
another's tax liability

54. ASSESSEE
The concept of assessee is central to the Indian income tax system, as it
determines who is responsible for paying taxes & compliance under the Act
An assessee is a person by whom income-tax or any other sum of money is
payable under the Act. This includes anyone involved in income tax
proceedings, whether paying tax, receiving a refund, or being responsible for
another's tax liability
The definition is broad and encompasses several categories:
Normal Assessee: This is the most common type, referring to individuals or entities
directly liable for their own tax payments. For example, a salaried employee paying
income tax on their earnings would be a normal assessee
Representative Assessee: pays tax on behalf of someone else who is unable to do so
themselves, such as a minor, a non-resident, or someone deemed incompetent. A
guardian paying taxes for a minor child would be a representative assessee.

55. ASSESSEE CONTD...
Deemed Assessee: The law assigns tax liability to this individual. Examples include
the legal heir of a deceased person or the executor of a will, responsible for paying
taxes on the deceased's income
Assessee-in-default: This is someone who fails to meet their tax obligations, such as
non-payment or non-filing of returns. A company failing to deposit TDS would be an
assessee-in-default

56. ASSESSEE CONTD...
Deemed Assessee: The law assigns tax liability to this individual. Examples include
the legal heir of a deceased person or the executor of a will, responsible for paying
taxes on the deceased's income
Assessee-in-default: This is someone who fails to meet their tax obligations, such as
non-payment or non-filing of returns. A company failing to deposit TDS would be an
assessee-in-default
The term "person" in this context is inclusive and covers individuals, HUFs,
companies, firms, and other entities
However, not all "persons" are assessees; only those with a tax liability under
the Income Tax Act, 1961, fall under this category
The specific type of assessee depends on their individual circumstances and
relationship to the tax liability.

57. PRACTICE TIME
Annual Income of Rajiv is less than the amount of exempted slab. He doesn’t
file his return and the department does not take any action against him.
Whether he is an assessee or not?
1.
Annual Income of Sachin is more than the amount of exempted slab. He
doesn’t file his return. Whether he is an assessee or not?
2.

58. ASSESSMENT & PREVIOUS YEAR
In simple words, assessment year is when taxes are due (assessed), and the
previous year is the period for which the income is being taxed.
The distinction is crucial for accurate tax calculation and compliance.
The "assessment year" is the period from April 1st to March 31st of the
following year when the income earned in the preceding year is taxed
The "previous year" is the 12-month period immediately before the
assessment year, typically the financial year (April 1st to March 31st)
All assessees use financial year as their previous year, regardless of their
income sources
Prof Naveen Sirohi

59. ASSESSMENT & PREVIOUS YEAR CONTD...
Example
Scenerio 1 (Normal) - Income earned between April 1, 2023 and March 31,
2024 (previous year) will be taxed during the assessment year April 1, 2024, to
March 31, 2025.

60. ASSESSMENT & PREVIOUS YEAR CONTD...
Example
Scenerio 1 (Normal) - Income earned between April 1, 2023 and March 31,
2024 (previous year) will be taxed during the assessment year April 1, 2024, to
March 31, 2025.
Scenario 2 (New Business): A business starts on October 26, 2023. Its first
previous year runs from October 26, 2023, to March 31, 2024 (less than 12
months). Subsequent previous years will be standard financial years (April 1st
to March 31st). Income from this first short previous year will be taxed in the
assessment year April 1, 2024, to March 31, 2025.

61. ASSESSMENT & PREVIOUS YEAR CONTD...
Example
Scenerio 1 (Normal) - Income earned between April 1, 2023 and March 31,
2024 (previous year) will be taxed during the assessment year April 1, 2024, to
March 31, 2025.
Scenario 2 (New Business): A business starts on October 26, 2023. Its first
previous year runs from October 26, 2023, to March 31, 2024 (less than 12
months). Subsequent previous years will be standard financial years (April 1st
to March 31st). Income from this first short previous year will be taxed in the
assessment year April 1, 2024, to March 31, 2025.
Exceptions:
There are exceptions where income from the previous year is taxed in the
same year, such as
income from non-residents from shipping, or
income from persons leaving India permanently or for a long period

62. CHARGEABILITY OF TAX ON INCOME
Income tax is an annual tax on income.
Income of previous year is chargeable in the next following assessment year
as the tax rates applicable for the assessment year (subject to few
exceptions).

63. CHARGEABILITY OF TAX ON INCOME
Income tax is an annual tax on income.
Income of previous year is chargeable in the next following assessment year
as the tax rates applicable for the assessment year (subject to few
exceptions).
Tax rates are fixed by annual Finance Act and not by the Income Tax Act.
Tax is charged on person.

64. CHARGEABILITY OF TAX ON INCOME
Income tax is an annual tax on income.
Income of previous year is chargeable in the next following assessment year
as the tax rates applicable for the assessment year (subject to few
exceptions).
Tax rates are fixed by annual Finance Act and not by the Income Tax Act.
Tax is charged on person.
Tax is levied on “total income” of every assessee computed in accordance
with provisions of the Act
Provisions as on April 1 of Assessment Year applicable for computing income
and tax

65. BROAD PRINCIPLES REGARDING CONCEPT OF INCOME
Regular and definite source
Different forms of income - cash, kind (valuation - IT rules of MV)

66. BROAD PRINCIPLES REGARDING CONCEPT OF INCOME
Regular and definite source
Different forms of income - cash, kind (valuation - IT rules of MV)
Receipt vs Accrual - Income arising either on reciept basis or accrual basis is
taxed
Illegal income - No distinction between legal or illegal source for taxation

67. BROAD PRINCIPLES REGARDING CONCEPT OF INCOME
Regular and definite source
Different forms of income - cash, kind (valuation - IT rules of MV)
Receipt vs Accrual - Income arising either on reciept basis or accrual basis is
taxed
Illegal income - No distinction between legal or illegal source for taxation
Disputed title - Assessment cann’t be postponed due to existence of any
dispute
Relief or reimbursement of expenditure - is not treated as income

68. BROAD PRINCIPLES REGARDING CONCEPT OF INCOME
Regular and definite source
Different forms of income - cash, kind (valuation - IT rules of MV)
Receipt vs Accrual - Income arising either on reciept basis or accrual basis is
taxed
Illegal income - No distinction between legal or illegal source for taxation
Disputed title - Assessment cann’t be postponed due to existence of any
dispute
Relief or reimbursement of expenditure - is not treated as income
Diversion of income - when an assessee on behalf of another person receives
income and later on it is diverted / transferred to that person, it is known as
diversion of income and is not chargeable to tax (example joint publication
remuneration)

69. BROAD PRINCIPLES REGARDING CONCEPT OF INCOME CONTD..
Temporary or permanent income - no distinction
Lump-sum receipt - Income whether received in lumpsum or installments is
not relevant (example arrears of salary)
Prof Naveen Sirohi

70. BROAD PRINCIPLES REGARDING CONCEPT OF INCOME CONTD..
Temporary or permanent income - no distinction
Lump-sum receipt - Income whether received in lumpsum or installments is
not relevant (example arrears of salary)
Includes losses - While income, profits and gains represents ‘plus income’,
losses represent ‘minus income’.
Tax free income - The income is grossed up for inclusion in his total income
Prof Naveen Sirohi

71. BROAD PRINCIPLES REGARDING CONCEPT OF INCOME CONTD..
Temporary or permanent income - no distinction
Lump-sum receipt - Income whether received in lumpsum or installments is
not relevant (example arrears of salary)
Includes losses - While income, profits and gains represents ‘plus income’,
losses represent ‘minus income’.
Tax free income - The income is grossed up for inclusion in his total income
No double taxation - Same income cannot be taxed twice
Devaluation of currency - Any income on account of devaluation is taxable
Prof Naveen Sirohi

72. BROAD PRINCIPLES REGARDING CONCEPT OF INCOME CONTD..
Temporary or permanent income - no distinction
Lump-sum receipt - Income whether received in lumpsum or installments is
not relevant (example arrears of salary)
Includes losses - While income, profits and gains represents ‘plus income’,
losses represent ‘minus income’.
Tax free income - The income is grossed up for inclusion in his total income
No double taxation - Same income cannot be taxed twice
Devaluation of currency - Any income on account of devaluation is taxable
Real, not fictional - Only real income is taxable. Fictional income like trading
with himself, transactions between head office and branch office or
revaluation of assets are not considered as income.
Prof Naveen Sirohi

73. BROAD PRINCIPLES REGARDING CONCEPT OF INCOME CONTD..
Composite Income - Income tax is a composite tax and aggregate of all
incomes during the PY is chargeable to tax
Surplus from mutual activity - Any surplus arising from a mutual concern
cannot be regarded as income and chargeable to tax. (example club activity
with common contribution and surplus left)

74. BROAD PRINCIPLES REGARDING CONCEPT OF INCOME CONTD..
Composite Income - Income tax is a composite tax and aggregate of all
incomes during the PY is chargeable to tax
Surplus from mutual activity - Any surplus arising from a mutual concern
cannot be regarded as income and chargeable to tax. (example club activity
with common contribution and surplus left)
Sources of income need not exist in the assessment year.
Pin money received by wife for dress / personal expenses and small savings
made out of household expenses given by husband is not treated as her
income.

75. BURDEN OF PROOF

76. BURDEN OF PROOF
In all cases in which a receipt is sought to be taxed as income, the burden lies
upont the department to prove that it is within the taxing provisions.
On the contrary, the burden of proving that any transaction / income is not
taxable as it falls under expemtion / deduction etc as provided by the Act lies
with the assessee

77. GROSS TOTAL INCOME

78. GROSS TOTAL INCOME
As per Section 14, income of a person is computed under the following five
heads:
Salariesa.
Income from house propertyb.
Profits and gains of business and professionc.
Capital gainsd.
Income from other sourcese.
The aggregate income under the above heads is termed as “Gross Total
Income”.
In other words, gross total income means total income computed in
accordance with the provisions of the IT Act before making any deductions.

79. TOTAL INCOME
Prof Naveen Sirohi

80. TOTAL INCOME
Total income of an assessee is gross total income as reduced by the amount
permissible as deductions under various sections - 80C to 80U
Rounding off of Income - The taxable income shall be rounded off to the
nearest multiple of ten rupees after ignoring any part of rupee consisting
paise.
Prof Naveen Sirohi

81. REVENUE AND CAPITAL RECEIPTS

82. REVENUE AND CAPITAL RECEIPTS
Receipts are of two types - revenue and capital
The distinction is critical as capital receipts are exempt from tax unless
expressly taxable. For example capital gains are taxable despite being capital
receipts.
On the contrary, revenue receipts are always taxable unless they are
expressly exempt from tax. For example inocme exempt under Section 10 like
agricultural income.
The Act does not define the terms ‘capital receipts’ and ‘revenue receipts’ so
natural meaning of the concepts along with decided cases are used for
distinction.

83. TESTS RELEVANT FOR DETERMINATION OF NATURE OF RECEIPTS
Capital sales vs. business sales - Profit from sale of capital asset is treated as
capital gains while profit from business activities is taken as revenue receipt
Fixed capital vs. circulating capital - receipt on account of circulating capital
is revenue receipt while receipt on account of fixed capital is a capital receipt

84. TESTS RELEVANT FOR DETERMINATION OF NATURE OF RECEIPTS
Capital sales vs. business sales - Profit from sale of capital asset is treated as
capital gains while profit from business activities is taken as revenue receipt
Fixed capital vs. circulating capital - receipt on account of circulating capital
is revenue receipt while receipt on account of fixed capital is a capital receipt
Receipt in the hands of the recipient - The nature of receipt at the hands of
the recipient is critical to determine the nature of the transaction.
Payer’s motive irrelevant

85. TESTS RELEVANT FOR DETERMINATION OF NATURE OF RECEIPTS
Capital sales vs. business sales - Profit from sale of capital asset is treated as
capital gains while profit from business activities is taken as revenue receipt
Fixed capital vs. circulating capital - receipt on account of circulating capital
is revenue receipt while receipt on account of fixed capital is a capital receipt
Receipt in the hands of the recipient - The nature of receipt at the hands of
the recipient is critical to determine the nature of the transaction.
Payer’s motive irrelevant
Receipt in lieu of source of income is a capital receipt (for example
compensation for loss of employement), while compensation for temporary
disablement is a revenue reciept

86. TESTS RELEVANT FOR DETERMINATION OF NATURE OF RECEIPTS
Nomenclature of transaction irrelevant - The name / form given to the
amount received in records is irrelevant for classification. The real nature /
substance is considered.

87. TESTS RELEVANT FOR DETERMINATION OF NATURE OF RECEIPTS
Nomenclature of transaction irrelevant - The name / form given to the
amount received in records is irrelevant for classification. The real nature /
substance is considered.
Change in exchange rate of currency - In general operational terms, excess
amount on account of exchange rate change is treated as revenue receipt.
Only in cases where foreign currency is held as an investment or to acquire a
capital asset, the profit due to exchange rate change is treated as capital
receipt.

88. INCOME TAX RATES - OLD & NEW REGIME
Under the old tax regime, there are over 70 exemptions and deductions
available, including HRA and LTA, that can reduce your taxable income and
lower tax payments. The most popular and generous deduction is Section
80C, which allows for a reduction of taxable income up to Rs.1.5 lakh.
New tax regime was introduced in Budget 2020 to simplify taxation by
reducing rates and eliminating most exemptions.

89. INCOME TAX RATES - OLD & NEW REGIME
Under the old tax regime, there are over 70 exemptions and deductions
available, including HRA and LTA, that can reduce your taxable income and
lower tax payments. The most popular and generous deduction is Section
80C, which allows for a reduction of taxable income up to Rs.1.5 lakh.
New tax regime was introduced in Budget 2020 to simplify taxation by
reducing rates and eliminating most exemptions.
Initially, taxpayers could choose between the old and new regimes. Budget
2023 made the new regime the default, though taxpayers can still opt for the
old one.
Later Budgets introduced further modifications, particularly benefiting
salaried employees to encourage taxpayers to adopt the new regime.

90. INCOME TAX RATES - OLD & NEW REGIME
The government is introducing various incentives recently to encourage
adoption of new regime with an intention to eventually phase out old regime.
The new regime is now default tax regime, old regime will continue to exist.

91. INCOME TAX RATES - OLD & NEW REGIME
The government is introducing various incentives recently to encourage
adoption of new regime with an intention to eventually phase out old regime.
The new regime is now default tax regime, old regime will continue to exist.
Both old and new tax regimes possess advantages and disadvantages. The
previous tax structure encourages taxpayers to cultivate a habit of saving,
while the new tax structure favours employees with lower earnings and
investments, resulting in fewer deductions and exemptions.
The new tax system is considered safer and simpler, involving fewer records
and reducing the potential for tax evasion fraud.

92. INCOME TAX RATES - OLD & NEW REGIME
The government is introducing various incentives recently to encourage
adoption of new regime with an intention to eventually phase out old regime.
The new regime is now default tax regime, old regime will continue to exist.
Both old and new tax regimes possess advantages and disadvantages. The
previous tax structure encourages taxpayers to cultivate a habit of saving,
while the new tax structure favours employees with lower earnings and
investments, resulting in fewer deductions and exemptions.
The new tax system is considered safer and simpler, involving fewer records
and reducing the potential for tax evasion fraud.
However, due to the unique nature of individual deductions and exemptions,
a thorough comparison of the two regimes is necessary to determine the best
fit for each person.

93. BUDGET 2025

94. COMPARISON

95. RESIDENTIAL STATUS
Tax incidence of an assessee depends on his residential status.
Significant as it dictates which income (Indian or foreign) is taxable in India.
All taxable entities are divided in five categories for the purpose of determining
residential status:
an individual
a Hindu Undivided Family (HUF)
a firm or an association of persons
a joint stock company
every other person
Three residential status possible:
Resident and ordinarily resident (ROR)
Resident but not ordinarily resident (RNOR)
Non-resident (NR)
Prof Naveen Sirohi