Income Tax – II

Heads of income 

Income is classified under 5 main heads under section 14 of the act 

  1. Income from salary
  2. Income from house property
  3. Income from capital gains
  4. Profit and gains from business and profession
  5. Other sources of income


Agricultural income 

Agricultural income is any rent or revenue by means of cash or in-kind, derived from a land, which is used for an agricultural purpose and land should be situated in India.

Income from agricultural should be produced by a cultivator or a rent receiver of that produce in-kind, which can be fit to take that into the market. 

The income should be derived from the sale by a cultivator or a rent receiver of that product which is produced or received by him, no process can be performed other than the process to render it fit for the market.   


Income deemed to accrue or arise in India

The income of a non-resident person or a foreign company is only taxable to the extent it arose in India. However, under section 9 of the income tax act, other provisions lay down the criteria as to why certain incomes are deemed to accrue in India even though they might actually arise out of India. 

Business connections – the term business connections has not been defined in the act but various judgments and circulars have emphasized on the meaning of it. 

As per the circular no. 23 of the income tax. Examples of non-resident having business connections in India have been given-

  1. Branch office in India
  2. Agent appointed for sale of goods for a non-resident.
  3. Forming a subsidiary company, of a non-resident parent company, in India
  4. Establish a factory in India to process the raw materials and the final product is then exported.
  5. Financial relations between resident and non-resident company


Residential status

 The taxation laws classify taxable persons under three categories 

  1. Resident person
  2. Resident not ordinarily resident
  3. Non-resident


Resident person – 

There are various tests to determine the residential status of a person

Test 1 – If the person is residing in India for 182 days, not necessarily at a stretch, in the preceding previous year, he is said to be a resident of India.

Test 2 – If the person is residing in India for 365 days or more in the previous 4 years and 60 days in the immediately previous year, he is said to be a resident.

Resident not ordinary resident – 

An individual is not an ordinary resident if

Test 1 – he has not resided in India for 9 out of the 10 previous years preceding that year

Test 2 – if the individual has not resided for 729 days or more in India in the 7 previous years

Test 3 – a Hindu undivided family whose manager has fulfilled above conditions


What is Payroll Tax?

Payroll taxes are Medicare and social security taxes, employers withhold half of these taxes from employee’s wages. Medicare taxes are a contribution to medical benefits for the person above the age of 65. Social security taxes are for the benefits of the retired person or disabled person or for their dependents. These two taxes are called as FICA tax, i.e., Federal Insurance Contribution Act Tax, which is defined by Internal Revenue Service. These taxes are paid to the Federal or State authority.  

If a person is self-employed then he doesn’t need to pay FICA tax, but a Self-employed Tax needs to be pay by him.

FICA Tax rate is equal for employers and employees. Self-employed tax rates are different from FICA tax rates.  


Income Tax Calculator

The income tax calculator is available for quick and easy access to basic tax calculation for the public. It does not assure the taxpayer for an exact payable tax. Some basic details have been provided to the calculator. 


Income Tax Slab

Income Tax rates divide into four slabs, i.e., 0%, 5%, 20% and 30%.

  Age of the individual  Tax rate Slab applicableLimit on Income
  Below 60 Years          NIL           5% 12,500 + 20% of total income 1,12,500 +30% of total incomeUpto rs.2,50,000 2,50,001 to 5,00,000 5,00,001 to 10,00,000 Above rs.10,00,000
    60-80 Years          NIL           5% 10,000 + 20% of total income 1,10,000 + 30% of total incomeUpto rs.3,00,000 3,00,001 to 5,00,000 5,00,001 to 10,00,000 Above rs.10,00,000
Above 80 Years          NIL           20% 1,00,000 + 30% of total income          Upto rs.5,00,000 5,00,001 to 10,00,000 Above rs.10,00,000

As per this slab, an individual is liable to pay taxes or tax deducted from their salary.

Corporate Income Tax

Corporate income tax is levied by the government on the profits of the companies. The tax rate paid by companies varies every year by the Income Tax Department. There are two types of Company explained under the Income Tax, i.e., Domestic Company and Foreign Company. 

Domestic Company.- Domestic Companies are those which are registered under the Companies Act of India. A company can be a Public Company or a Private Company. I also include those companies which are situated or registered outside India but having control and management completely in India.  

Foreign Company.- Foreign Companies are those which are not registered under the Companies Act of India and having control and management completely outside India.

Now, under Corporate Income Tax these both companies are liable to pay taxes. In the case of Domestic Company, tax is levied on universal income but for Foreign companies, only that income is taxable which is earned within India.

Income earned from the Company included-

  1. Profit earned by the business;
  2. Capital gains from sale;
  3. Income from renting property;
  4. Income from other sources.

Income Tax Rate of the company depends on the turnover of the company during the Financial Year. 

Income Tax Return form file by a company is ITR-6 and ITR-7. As per Income Tax, requirement companies have to audit their accounts and submit it along with ITR form. This audit is known as Tax Audit


Tax is a mandatory charge levied on a person by the government, as we have discussed what taxes are paid by a person and how he can calculate his payable tax. There are a number of Provisions provided under law for taxpayers as per their requirements. The government has provided various forms to pay income tax whether a person is an individual or HUF or a company or he is an ordinary resident or non-ordinary or non-resident person, as per their applicability they can file income tax. 

Aishwarya Says:

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