Taxation Management (planning)

Some important terms:

Total Income

Definition of Income: As per relevant section of IT Act,1961, IT Rule,1962 and

subsequent amendments thereof, the term income among other things mainly
includes : profits and gains; dividend; the value of any perquisite or profit in lieu of
salary taxable, any allowances, special allowances which are chargeable under
different provisions of the IT Act, and IT Rules and other updated amendments
thereof, any capital gains chargeable, any sum chargeable to Income tax, any
profit/gain of any business of banking, insurance, including winnings from lotteries,
crossword puzzles.etc.,

Concept of Income: (1) The concept of income can be explained as under: Generally
the meaning of the term “Income” include receipts in any form of money or
money’s value. However not all the form of income is subject to tax under the Act.
The amount received on the sale of a house is not income, but the receipt (rent)
arising out of leasing the house, is an income. However, if a person deals in buying
and selling the properties and the profit out of such deals will be treated as income.
(2) While receipts can be broadly classified into (a) capital receipt and (b) revenue
receipt (as explained above, the sale of house capital receipt and lease rentals
revenue receipt (c) In certain cases the profit arising out of sale of capital assets are
treated as capital gains and are subject to taxation (d) Other source of income, such
as winnings in lotteries, crossword puzzles etc., (3) It
is not the gross receipts but the net receipts (subject to allowable deductions-as
per the provisions of the Act) that are subject to taxation
(4)Other important aspects:
Basis of Income: (a) In respect of business units, income can be taxed based on the
method of accounting by them (b) In other cases, income can be taxed based on (i)
the receipt basis or (ii) accrual basis, whichever happens earlier (c) In case of
contngent inome, (an income which may or may not arise)

such as an income can not be taxed unless and until such contingency actually
happens and the income arises to the assessee/s)

Pin money: If A gives his wife Mrs A, every month money for running the household
expenses. Out of which Mrs A she is able to use certain money ,for her dress, or
private expenses as also small savings, such money is called as pin money. While
this is not treated as income in the eyes of the law. Any property acquired with the
help of such pin money or savings would be treated as a capital asset belongs to
Mrs.A.

Capital Receipt: While to be taxable an income should be in the nature of revenue

receipt. However certain capital receipts are subject to taxation:

 Income by way of capital gains (Sec 45)

 Compensation for modification/termination (Sec 17(3)(i)

 Any sum of property received by an individual or HUF without any

consideration or as gift during the previous year and the value is above
Rs.50,000

Gross Total Income: As per Sec 14, all income for the computation of Income Tax
shall be classified as under:
Aggregate of incomes as computed under the above five heads, taking into
consideration the clubbing provisions and making adjustments of set off (if any) and
carry forward of losses (if any), is known as Gross Total Income {Sec 80B(5)}

Total Income: The total income of an assessee is computed as under:

Gross Total Income minus all deductions (deductions under sections 80C to 80U)
Chapter VIA of the Act