CA > Inter > Paper 3 – Skim Notes

Section 1 : Overview, Scenario, Crossword Puzzle

Overview

  • Introduction to fundamental concepts of income-tax law in India.
  • Understanding who qualifies as a ‘person’ under income-tax law.
  • Detailed procedure for computing total income and tax liability.
  • Important definitions: ‘previous year’ and ‘assessment year’.
  • Meaning and scope of ‘income’ as per income-tax law.
  • Tax rates, surcharge, and cess for various entities.
  • Determining residential status and its impact on taxation.

Key Topics

Chapter 1: Basic Concepts of Income-Tax Law

  • Income-tax is levied on the total income of a person, which includes individuals, companies, and HUFs.
  • Definition of ‘person’ includes individuals, companies, firms, associations, etc.
  • Total income is computed according to the provisions of the Income-tax Act, 1961, which involves understanding previous year and assessment year definitions.
  • The ‘previous year’ is the financial year immediately preceding the assessment year, during which income is earned.
  • ‘Assessment year’ is the year in which the income earned in the previous year is assessed and taxed.
  • Understanding the concept of taxable income, which is the income chargeable to tax based on various heads provided by law.
  • Income tax rates can vary based on the type of taxpayers and the nature of income.

Deep Dive

  • The income tax system in India is progressive, meaning higher income levels are taxed at higher rates.
  • Certain tax benefits and exemptions may apply based on age, such as senior citizens or individuals with disabilities.
  • Surcharge and cess can significantly affect the total tax liability and vary based on income slabs.

Chapter 2: Residential Status and Scope of Total Income

  • Residential status impacts the scope of income chargeable to tax in India.
  • An individual can be classified as Resident and Ordinarily Resident, Resident but Not Ordinarily Resident, or Non-Resident based on the number of days stayed in India.
  • Global income for residents is taxable in India, while non-residents are taxed only on income accrued in India or deemed to be received in India.
  • Understanding the concept of ‘deemed to accrue’ is crucial for taxation, particularly for non-residents.
  • A citizen of India may be deemed a resident under certain conditions even if they do not meet physical presence tests.
  • The chapter also articulates the importance of understanding various income components and their taxation based on residential status.
  • Key to residential status determination includes a review of days stayed in current and previous years.

Deep Dive

  • Change in residential status can affect global tax obligations significantly.
  • Different income sources may have varying tax implications based on the individual’s classification as resident or non-resident.
  • Complex international tax treaties can influence the taxability of certain overseas income.

Summary

This overview covers the foundational concepts of income-tax law in India, as introduced in Chapters 1 and 2 of the syllabus. Chapter 1 focuses on the basic principles of income-tax, highlighting the importance of understanding who qualifies as a ‘person’ under the law, and detailed computation procedures for total income and tax liability. Key definitions, particularly of ‘previous year’ and ‘assessment year’, are laid out alongside tax rates. Chapter 2 delves into the significance of residential status in determining the scope of taxable income, underscoring the implications for residents versus non-residents in terms of global income taxation. These concepts provide a critical bedrock for further explorations into income-tax law, especially in relation to real-world scenarios faced by individuals and families.