Basic Concepts – CA Inter Tax Study Material

Basic Concepts – CA Inter Tax Study Material is designed strictly as per the latest syllabus and exam pattern.

Basic Concepts – CA Inter Taxation Study Material

Introduction

Question 1.
Answer the following with regard to the provisions of Income-tax Act, 1961.
Explain the concept of margimTrelief under the Income-tax Act, 1961. [Nov. 2008, 4 Marks]
Answer:

• Marginal relief is just reduction of tax payable.
• The Principle of marginal relief is that the additional amount of income tax with surcharge in excess of income over the specified limit will not be more than the amount in excess of specified limit.
• Where Total Income exceeds 50 lacs the amount payable as the income tax and surcharge on such income shall not exceed the total amount payable as income tax on a total income of rupees 50 lakh by more than the amount of income that exceeds ₹ 50 lacs.
• Where the Total Income exceeds one crore rupees the total amount payable as income tax and surcharge on such income will not exceed the total amount payable as income tax on the total income of one crore rupees by more than the amount of income that exceeds 1 crore rupees.

Question 2.
Answer the following with regard to the provisions of the Income-tax Act, 1961.
Explain previous year for undisclosed sources of income. [May 2009, 4 Marks]
Answer:
In certain cases the following incomes are treated as deemed income in case of undisclosed sources of income:

Particulars	Relevant Provision
Section 68	Cash Credit
Section 69	Unrecorded And Unexplained Investments
Section 69A	Unrecorded And Unexplained Money
Section 69B	Money amount of investments not fully disclosed in the books of account
Section 69C	Unexplained Expenditure
Section 69D	Hundi Borrowable and Repayments

• If total income of an assessee includes any deemed income as explained above, then it is taxable in the year of disclosure.
• It is taxable at the rate of 6096 with surcharge at the rate of 2596 and education cess at the rate of 496.
• No deduction in respect of any expenditure is or set of any law is allowed.

Question 3.
Answer the following with regard to the provisions of Income-tax Act, 1961.
Define the meaning of infrastructure capital fund as per section 2(26B) S of the Income-tax Act, 1961, [May 2009, 4 Marks]
Answer:
Infrastructure Capital Fund [Section 2(26B)]:
Infrastructure Capital Fund means such fund operating under a trust deed registered under the provisions of the Registration Act, 1908 established to raise monies by the trustees for investment by way of acquiring shares 1 or providing long-term finance to :

• An undertaking engaged in infrastructure development of infrastructure business of infrastructure facility providing telecommunication services industrial park maintenance and development generation of power reconstruction for revival of power generating plant under section 80-IA.
• Undertaking or enterprises engaged in the development of special economic zone under section 80-IAB.
• Engaged in business of developing and building housing project in section 80-IB.
• Undertaking engaged in project for construction of hospital with at least 100 beds for patients.

Question 4.
Define the term Assessee as per the Income-tax Act, 1961. [Nov. 2013, 4 Marks]
How is the term Assessee defined under the Provisions of the Income-tax Act, 1961? [May 2016, 4 Marks]
Answer:
Section 2(7)

Particulars	Relevant Provision
Section 2(7)	An assessee means A person who is liable to pay any tax or Any other sum under Income Tax Act In respect of whom any proceeding under the act has been started for the assessment of his income or Who is Deemed to be assessee under the provision of this act or Who is Deemed to be assessee in default under any provision of this act.
Meaning and Examples of Deemed Asses­see	Deemed assessee means Any person who is Deemed to be an assessee for any other person is called as deemed assessee. If any person is representing any firm or minor or lunatic is known as deemed person. If after the death of person the legal Heirs will be treated as deemed assessee.
Meaning and Examples of As­sessee in Default	Assessee in default means if any person who is responsible to do any work under this act and fails to do that work he is assessee in default. if any person who is making any payment to another person is liable to deduct income tax at source and he does not deduct any income tax or after deducting does not deposit in government account then he will become assessee in default.

Question 5.
Briefly explain the purpose for which the words Proviso and Explanation are incorporated under the various sections of the Income-tax Act, 1961. [May 2018, 2+2 = 4 Marks]
Answer:

Particulars	Relevant Provision
Proviso Meaning	an exception to the provision
Proviso Ex­ample	Provided that no tax shall be charged on the amount of gains on shares sold on a recognized stock exchange
Explanation Meaning	Explanation further clarifies the section or provides a further details
Explanation Example	HEC is levied at 4%

Question 6.
State the Elements Sources of Income Tax Law.
Answer:
Elements/Components/Sources of Income Tax Law are

• The Income-tax Act, 1961
• Finance Act
• The Income-tax Rules, 1962
• Circular and notifications from Central Board of Direct Taxes
• Supreme Court and High Court decisions only on question of law

Question 7.
One of the exceptions to the rule “that the income of the previous year shall be assessed in the subsequent assessment year is the shipping business of non-resident”.
Discuss briefly the assessment aspect of the income from shipping business.
Answer:
There are certain exceptions and shipping business of non-resident is governed by section 172.

• An assessee being non-resident either the owner of a ship or has Chartered the ship.
• Ship carries passengers or livestock or goods at a port in India.
• 7.5% of the amount of caries including Demurrage Charges and handling charges paid or payable will be deemed as income of the assessee under section 44B.
• The master of the ship will pay the tax and filed the return before the departure of the ship or can make arrangements for payment of such tax within 30 days of departure of the ship.
•  It is mandatory.

Question 8.
Explain the term substantial interest defined in Section 2(32) and its application in at least two situations.
Answer:
Substantial interest means

Particulars	Relevant Provision
For Non-Cor­porate Entity	Entity person holding 20% or more shares of the profit. In case of company the person who is holding 20% or more voting rights.
Example	If husband and wife both are having substantial interest in a company or firm for concern and receiving any remu­neration from that concern then it will be clubbed in the hands of spouse having higher total income before clubbing such income. If any spouse is getting any remuneration by doing work of non-professional nature then the income from a such concern in which his spouse has substantial interest then such remuneration is taxable in the hands of person who has substantial interest.

Question 9.
Explain the following concepts
Tax Planning, Tax Avoidance, Tax Evasion
Answer:
Tax planning

• The analysis of a financial situation or plan from a tax perspective.
• The purpose of tax planning is to ensure tax efficiency.
• Reduction of tax liability and maximizing the ability to contribute to retirement plans are crucial for success.
• With the help of tax planning, one can ensure that all elements of a financial plan can function together with maximum tax-efficiency.
• Tax planning is a significant component of a financial plan.

Tax avoidance

• The use of legal methods to minimize the amount of income tax owed by an individual or a business.
• This is generally accomplished by claiming as many deductions and credits as is allowable.
• It may also be achieved by prioritizing investments that have tax advantages, such as buying municipal bonds.
• Tax avoidance is not the same as tax evasion which relies on illegal methods such as underreporting income and falsifying deductions

Tax evasion

• An illegal activity in which a person or entity deliberately avoids paying a true tax liability.
• Those caught evading taxes are generally subject to criminal charges and substantial penalties.