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Basic Concepts of Income Tax – I

Tax is that part of our income which the Government of India takes from us for providing us numerous facilities like, water and drainage system, protection against internal and external enemies, developing infrastructure.
In simple words Tax is a source of revenue for the Government. There are two types of taxes –
1. Direct Tax
2. Indirect Tax
Let us discuss these in brief:
Direct tax is the tax which can’t be shifted to others. Income tax is a direct tax (and we all try to save it to the best possible limit!) Now while talking about tax saving, three relevant concepts are tax planning, tax omission & tax evasion that we will discuss later.
Indirect Tax on the other hand is a tax that causes rise in the price of goods and is ultimately borne by the customer. That means, if I and Mr. Ambani enjoy Parle- G with the morning tea, both of us are bearing the same amount of tax (that’s soo unfair, isn’t it!). But still we don’t crib about it because the amount of indirect tax can’t be seen by us, the customers. And this is one of the reasons why, Indirect tax is the main source of revenue for the Government.
What are Tax Planning, Avoidance and Evasion?
The Government has given us some provisions to reduce the tax on our income. Proper use of those tools for reducing the tax is called Tax Planning.
The CAs try to find out the loopholes within the provisions of Income Tax Act, and work within those loopholes to save taxes for their clients while the Income Tax department just keeps on staring. It is tax avoidance.
When you compute your income tax returns according to your own whims giving no care whatsoever to the Income Tax laws, its called Tax Evasion and is an offence.
Who are liable to pay Taxes?
Every PERSON is liable to pay TAX
We have already briefly discussed the  TAX part of the above statement. Now we will discuss about PERSONS liable to pay tax.
Generally we use the words ‘person’ and ‘individual’ in the same way interchangeably but this is not the case in Income Tax. In Income Tax Act, the following are all persons
1. Individual
Ram, Tariq, John, you, me are individuals. We all know about ourselves so we are not discussing it here.
2. Hindu United Family (HUF)
Hindu United Family is not defined in the Income Tax Act. The concept comes from Hindu Law. The three generation of descendents from a common ancestor, with their wives, unmarried daughters and daughter in laws form a Hindu United Family. All in the family are the members of the family though only the male members in the family may be coparceners. Coparceners are those members who have the right to partition of the property.
There are two schools of HUF –
                Dayabhaga, where the decision of Karta (i.e., the head of the HUF) is ultimate. Here Karta of the family can distribute property to any person of his choice (male or female) and other members of the family can have no say on his decision. This school is applicable in West Bengal & Assam.
                Mitakshara is the school which is applicable in the rest of India. Here the male member of the family has the right to partition in property from his birth.
3. Body of Individuals
When two or more Individuals join hands for common actions with different objectives.
4. Association of Persons (AOP)
When two or more Persons join hands for common actions with common objectives.
5. Firms
AOP with a registered Partnership Deed is called a Firm.
6. Company
Any person is called company if
a) registered under the Indian Companies Act, 1956 or,
b) declared by CBDT by a general or special order as a a company.
7. Every artificial judicial person and Local Authority
Idol of Gods, Goddesses are examples of Artificial Judicial Person where as Loacl Municipality or Corporation is example of Local Authority.

What are Tax Slabs for students appearing examination in May, 2010?
For Individuals
Tax Rate (%) Male (below 65) Female (below 65) Senior Citizens
NIL Upto  1,60,000/- Upto  1,90,000/- Upto 2,40,000/-
10 1,60,000/- – 3,00,000/- 1,90,000/- – 3,00,000/- 2,40,000/- – 3,00,000/-
20 3,00,000/- – 5,00,000/- 3,00,000/- – 5,00,000/- 3,00,000/- – 5,00,000/-
30 Above 5,00,000/- Above 5,00,000/- Above 5,00,000/-

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