3rd SEM INTERNAL EXAMINATION-2023

ASSIGNMENT
FOR B-COM [HONS]

Assignment for 3rd Semester Internal Examination-2023

For B.COM [Hons}
COURSE: Income Tax Law and Practice [Core]

QUESTION OF 05 MARKS: 1 page

a) What do you mean by ‘Assessment Year’ and ‘Previous Year’?

Ans:- ‘Assessment Year’ and ‘Previous Year’ are explained below.

Assessment Year
It is assumed that Income cannot be taxed before it is earned. Therefore,
Assessment Year always appears after the Previous Year or follows the Previous Year in
which income is collected. Section 2 (9) of the IT Act defines Assessment Year as the
period of twelve months commencing on the 1st day of April every year. Assessment Year
is Financial Year whereby the income accrued by a person in Previous Year or in Year
preceding this Financial Year shall be Taxed or assessed. Calculation of tax requires
assessment, calculation and payment of taxes which shall be done in the 12 months
period of Assessment Year. It is the period during which an assesse is required to file the
return of income i.e. Income Tax Return (ITR) for the income earned in the Previous Year
and the Income Tax Officer (ITO) has to initiate assessment proceedings for such
returned income and tax thereon.

Income tax forms have an Assessment Year because the income for any Financial Year is
evaluated and taxed in the following or next or subsequent year i.e. the Assessment
Year. Hence, it made it mandatory to select Assessment Year while filing income Tax
Returns. The selection of the correct Assessment Year is also very important because
assessment may hamper by adverse situations that can come up either in the beginning,
middle or end of a Financial Year. Therefore, to streamline the process of collection tax
mentioning of correct Assessment Year is important.

Previous Year
As per the Income Tax law, the Previous Year is the year in which income is
earned. Income earned in this year is taxable in the next year, known as the Assessment
Year. In the layman’s language, the current Financial Year is known as the Previous Year.
The Financial Year starts from 1st April and ends on 31st March of the next year. For
Example, for the salary accrued in Financial Year starting from 1st April to 31st March
2020, the Previous Year would be 2019-20.

Income Tax law defines Previous Year, as defined in section 3 of Income Tax Act, 1961
(hereinafter referred to as “IT Act”). The Previous Year is the Financial Year immediately
preceding the Assessment Year. In the case of business or profession newly set up, or a
source of income newly coming into existence, in the said Financial Year, the Previous
Year shall be the period beginning with the date of setting up of the business or
profession or, as the case may be, the date on which the source of income newly comes
into existence and ending with the said Financial Year.
 b) What are the different heads of Income?
Ans:- According to the Income Tax Act, a taxpayer’s earnings are divided into 5 heads
of income.

• Income from salary

Any income that you receive in terms of the service you provide on a contract of
employment is applicable for taxation under this head. This includes salary, advance
salary, perquisites, gratuity, commission, annual bonus and pension.

This tax head also includes some exemptions:

1. House Rent Allowance (HRA)
2. Conveyance Allowance

• Income from house property

An individual’s income from his or her property or land is taxable under the head of
income from house property. To put it simply, this head includes the policy for
calculating tax on rental income that you receive from your properties.

In case you own more than one self-occupied house, then only one house is considered
to be occupied and the rest are considered to be rented out. The taxation occurs on
income received from both commercial and residential property.

• Income from profits and gains from business or profession

The profits that you earn from any kind of business or profession are taxable under this
head. You can subtract your expenses from the total income in order to determine the
amount on which tax is chargeable.

Here are the types of income that are chargeable under this head:

1. Profits generated from the sale of a certain license

2. Gains earned by an individual during an assessment year
3. The profits that an organization makes on its income
4. Cash received on the export of a government scheme
5. The benefits that a business receives
6. Gains, bonuses or salary that an individual receives due to a partnership with a
firm

• Income from capital gains

When you earn profits by transferring or selling an asset that was held as an investment,
that income is taxable under the head of income from capital gains. A large number of
assets, like gold, bonds, mutual funds, real estate, stocks, etc., fall under capital assets.

Now, you can subdivide capital gains into short-term capital gains and long-term capital
gains.
When you sell your capital assets after holding them for a period of 36 months or more,
they will fall under long-term capital gain and will have a tax rate of 20%. Alternatively, if
you sell your capital assets within a period of 36 months, the tax deduction will be under
short-term capital gain at the rate of 15%. In the case of securities, this is applicable if
you sell your holdings within 12 months from the purchase date.

• Income from other sources

Among the five heads of income tax, this one includes any other income that does not
have any mention in the above 4 heads. They fall under Section 56 sub-section (2) of the
Income Tax Act and include income from lottery, bank deposits, gambling, card games,
sports rewards, etc.

c) What do you mean by ‘Long term’ and ‘Short term’ capital gain?

Ans:- The term capital gains can be defined as profits accumulated from the sale
of any capital asset. Such gains can be accrued either through the sale of investment or
real estate property. Depending on the duration, capital gains can either be short-term
or long-term.

Long-term Capital Gain Tax

Any asset that is held for over 36 months is termed as a long-term asset. The profits
generated through the sale of such an asset would be treated as long-term capital gain
and would attract tax accordingly.

Assets like preference shares, equities, UTI units, securities, equity-based Mutual Funds
and zero-coupon bonds are also considered as long-term capital asset if they are held for
over a year.

Short-term Capital Gain Tax

Any asset that is held for less than 36 months is termed as a short-term asset. In the
case of immovable properties, the duration is 24 months. The profits generated through
the sale of such an asset would be treated as short-term capital gain and would be taxed
accordingly.

d) Mention the circumstances where income of previous year is assessed in

the same year.

Ans:- Everyone is aware that income is earned in Year 1 and assessed to tax only after
the completion of Year 1 i.e. in the next Year; Year 2. That’s why Income Tax Department
uses the term Assessment Year almost everywhere. But few cases are exceptions to this
basic rule of Income Tax. They are earned and assessed to tax in the same year.

Five such cases are listed below:

1. Shipping business income of non-resident ship-owners[Section-172]

In case a non-resident shipping company, which has no representative in India,

earns income by carrying passengers, livestock, mail or goods loaded from any
 Indian port, such ship will not be allowed to leave the port till the tax on such income
has been paid or alternative arrangements to pay tax are made. As such income is
assessed to tax at current year’s rates.

2. In cases of persons leaving India [Section-174]

When it appears to the Assessing Officer that any individual may leave India during
the current assessment year or shortly after its expiry and that he has no present
intention of returning to India, the total income of such individual for the period
from the expiry of the previous year for that assessment year up to the probable
date of his departure from India shall be chargeable to tax in that assessment year.

3. Assessment of any association of persons, body of individuals or Artificial

Juridical person formed or established only for a limited period [Section-174A]

In case an Assessing Officer finds that any association of persons, body of individuals
or Artificial Juridical person has been formed or established only for a limited period
or for a particular event and it is likely to be dissolved or discontinued in the same
year after the accomplishment of such event or purpose, the assessment of such
person can be made in same year.

4. In case of persons who are likely to transfer their assets to avoid tax [Section-
175]

If it appears to the A.O. that any person is likely to sell, transfer, dispose of or to part
with any of his assets with the intention to avoid payment of any tax liability, he may
commence proceeding to assess the income for the period between the expiry of
last previous year and the date of commencement of such proceedings.

5. In case of discontinued business [Section-176]

In case any business or profession is discontinued during an assessment year, the

income of the period from the expiry of last previous year till the date of
discontinuation may be assessed to tax in the current assessment year at the
discretion of the assessing officer.

QUESTION OF 10 MARKS: 2 pages

a)Explain in brief the criteria and condition that influence the

residential status of an individual.
b)Write short note on the following sections as per Income Tax Act,
1961.
i. Section 80C
ii. Section 80G
Ans:- Short notes as per Income Tax Act, 1961.
i. Section 80C
Section 80C of the Income Tax Act of India is a clause that points to various expenditures
and investments that are exempted from Income Tax. It allows for a maximum deduction
of up to Rs 1.5 lakh every year from an investor’s total taxable income. Tax exemptions
for investment under 80C are applicable only for individual taxpayers and Hindu
Undivided Families. Corporate bodies, partnership firms, and other businesses are not
qualified to avail of tax exemptions under Section 80C.

Section 80C permits certain investments and expenses to be tax-exempted.

By well-planning the investments that are spread diversely across various options like
NSC, ULIP, PPF, etc., an individual can claim deductions up to Rs 1,50,000. By taking tax
benefits under 80c, one can avail of a reduction in tax burden.

Eligibility of Sec 80C of Income Tax Act

Individuals and HUFs are both eligible for Section 80C deductions. This section also
applies to both Indian residents and non-resident Indians.

Companies, partnerships, and other corporate bodies are not eligible for the deduction.

ii. Section 80G

Section 80G is a provision under the Income Tax Act of India that allows taxpayers to
claim deductions for donations made to specified charitable institutions and funds. The
purpose of this section is to encourage individuals and organizations to contribute
towards charitable causes while also providing them with tax benefits.

The government provides this incentive to encourage charitable donations and support
the activities of charitable organizations, which can benefit society as a whole. By
providing tax benefits to donors, the government hopes to encourage more people to
donate to charitable causes. Taxpayers need to provide the details of their donations and
the eligible amount for deduction under Section 80G while filing their income tax returns.

The deduction under this provision is allowed as follows:

(a) 100% deduction without any maximum limit
(b) 50% deduction without any maximum limit
(c) 100% deduction subject to a maximum limit
(d) 50% deduction subject to a maximum limit

c) Write short note on the following as per Income Tax Act, 1961-
i. Agricultural Income
ii. Incidence of Tax
Ans:- Short notes as per Income Tax Act, 1961.
i. Agricultural income

The Indian government, with the Income Tax Department, has exempted agriculture
income by defining agriculture income tax under section 10(1) of the Income Tax Act of
1961. The exemption implies that the government wants Indian citizens to take on
agricultural activities without being liable to pay income tax on the earned income.
However, the state government levies agriculture income tax on agriculture income
using a method known as partial integration of agricultural income with non-agricultural
income when the below conditions are met.

● The net agriculture income is above Rs 5,000 in the previous financial year.

● Total income after deducting the agricultural income is higher than the exemption
limit of Rs 2,50,000 for individuals below 60 years, Rs 3,00,000 for senior citizens and Rs
5,00,000 for super senior citizens.

The following are some of the examples of agricultural income:

• Income derived from sale of replanted trees.

• Income from sale of seeds.
• Rent received for agricultural land.
• Income from growing flowers and creepers.
• Profits received from a partner from a firm engaged in agricultural produce or
activities.
• Interest on capital that a partner from a firm, engaged in agricultural operations,
receives.

Types of Agricultural Income

The Indian government has classified agricultural income into three categories.

● Income from agricultural land: This includes income earned from cultivating
crops, fruits, vegetables, and other agricultural products. It also incorporates income
from selling livestock, dairy products, and poultry.

● Income from agricultural business: This includes income earned from

agricultural processing and manufacturing activities such as sugar, textiles, jute, and
other agricultural products.

● Income from agricultural rent: This includes income earned by the landowner
from renting out the land to farmers for cultivation purposes. The owner can receive the
rent income either in cash or in kind.

ii. Incidence of Tax

A tax incidence is effectively the burden that a party, either an individual or business,
ultimately bears, even if they’re not the ones directly paying a tax. For example, a sales
tax on clothing would be paid directly by consumers at the time of purchase. A $100
purchase with a 5% sales tax would mean the consumer pays an additional $5. However,
the tax incidence of the sales tax could fall on retailers if, say, it prompted consumers to
purchase less clothing.

Maybe the consumer has a strict $100 budget, so, accounting for sales tax, they decide
to leave out an item and purchase $80 worth of clothing, plus pay $4 in sales tax. In this
scenario, the retailer arguably bears more of the tax burden, because the consumer is
purchasing $20 less in merchandise.
In other instances, consumers might be affected by certain taxes more than retailers.
Perhaps higher business taxes lead a store to raise prices, thereby causing consumers to
feel the effect of those taxes more. That can particularly be the case if price elasticity—
or the percentage change in quantity when a price changes by 1%—is a factor.1

If something is a necessity, it could be inelastic, meaning consumers will still purchase

the same amount, even if the price goes up. Yet if something is elastic (for example, a
non-necessity like some consumer electronics) then consumers might decide to
purchase less as the price goes up, meaning retailers might feel the incidence of higher
business taxes.

Key Takeaways

• Tax incidence reflects who ultimately bears the cost of taxes, which isn’t always
the person who pays them directly.
• Multiple parties can be affected by tax incidence. Consumers might pay higher
sales taxes, but at the same time, retailers might feel the cost even more due to
reduced sales, which can also result in lower employee pay.
• Economists don’t always agree on tax incidence. Establishing tax incidence isn’t
always straightforward, as several factors may be involved. Economists can try to
determine it by applying different types of models.

Note
Determining incidence isn’t always straightforward, as many variables can be at play.
Perhaps there’s a mix of consumers and retailers carrying the burden of higher sales or
business taxes, but tax incidence can also fall to employees. Maybe retailers drop wages
or lay off staff in response to lower demand, meaning workers bear the brunt of the cost.