“PERSONAL INCOME TAX”

SUBMITTED BY:
RADHIKA PRASAD
B.A., LL.B. (Hons.)
ROLL No. 2139
SEMESTER: 8th

SUBMITTED TO:
Dr. G.P. Pandey
PROFESSOR OF LAW

A FINAL DRAFT SUBMITTED IN THE PARTIAL FULLFILMENT OF THE

COURSE TAXATION LAWS FOR THE DEGREE OF B.A. LL.B.

CHANAKYA NATIONAL LAW UNIVERSITY, NYAYA NAGAR,

MITHAPUR PATNA-800001

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 DECLARATION

I hereby declare that the project entitled “PERSONAL INCOME TAX” submitted by me at
CHANAKYA NATIONAL LAW UNIVERSITY is a record of bona fide project work
carried out by me under the guidance of my mentor Prof.Dr. G.P Pandey. I further declare
that the work reported in this project has not been submitted and will not be submitted, either
in part or in full, for the award of any other degree in this university or in any other
university.
RADHIKA PRASAD
ROLL NO. 2139

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 ACKNOWLEDGEMENT

It is a fact that any research work prepared, complied or formulated in isolation is

inexplicable to an extent. This research work, although prepared by me, is a culmination of
efforts of a lot of people who remained in veil, who gave their intense support and helped me
in the completion of this project.
Firstly, I am very grateful to my subject teacher Prof.Dr. G.P Pandey, without the kind
support and help of whom the completion of this project was a herculean task for me. He
donated his valuable time from his busy schedule to help me to complete this project. I would
like to thank him for his valuable suggestions towards the making of this project.
I am highly indebted to my parents and friends for their kind co-operation and encouragement
which helped me in completion of this project.
Last but not the least, I would like to thank the Almighty who kept me mentally strong and in
good health to concentrate on my project and to complete it in time.
I thank all of them!

RADHIKA PRASAD
Roll No. :2139

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 TABLE OF CONTENTS

1. Introduction...................................................................................................5
- Aims & Objectives
- Hypothesis
- Research Methodology
- Research Question
- Scope of study
2. Concept of income.........................................................................................7
3. Legal provisions related to income tax.........................................................9
4. What is tax evasion and penal provision for evasion of tax..........................11
5. Conclusion....................................................................................................14

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 INTRODUCTION

Tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an
individual or legal entity) by a governmental organization in order to fund government
spending and various public expenditures (regional, local, or national), and tax
compliance refers to policy actions and individual behaviour aimed at ensuring that taxpayers
are paying the right amount of tax at the right time and securing the correct tax allowances
and tax reliefs. In economic terms, taxation transfers wealth from households or businesses to
the government. This has effects that can both increase and reduce economic growth and
economic welfare.Most countries have a tax system in place, in order to pay for public,
common, or agreed national needs and for the functions of government. Some levy a flat
percentage rate of taxation on personal annual income, but most scale taxes are progressive
based on brackets of annual income amounts. Most countries charge a tax on an individual's
income as well as on corporate income. Countries or subunits often also impose wealth taxes,
inheritance taxes, estate taxes, gift taxes, property taxes, sales taxes, use taxes, payroll taxes,
duties and/or tariffs.
Taxation is a term for when a taxing authority, usually a government, levies or imposes a
financial obligation on its citizens or residents. Paying taxes to governments or officials has
been a mainstay of civilization since ancient times.The term "taxation" applies to all types of
involuntary levies, from income to capital gains to estate taxes. Though taxation can be a
noun or verb, it is usually referred to as an act; the resulting revenue is usually called
"taxes."1
Income tax: Governments impose income taxes on financial income generated by all entities
within their jurisdiction, including individuals and businesses.Income tax is a type of tax that
the central government charges on the income earned during a financial year by the
individuals and businesses. Taxes are sources of revenue for the government. Government
utilizes this revenue for developing infrastructure, providing healthcare, education, subsidy to
the farmer/agriculture sector and in other government welfare schemes. Taxes are mainly of
two types, direct taxes and indirect form of taxes. Tax levied directly on the income earned is
called as direct tax, for example Income tax is a direct tax. The tax calculation is based on the
income slab rates applicable during that financial year.
Income Tax is a direct tax that is charged on an individual’s or entity’s income. The tax is
calculated on the next taxable income of the entity based on the income slabs which are pre-
defined by the IT Department.2
The term income tax refers to a type of tax that governments impose on income generated by
businesses and individuals within their jurisdiction. By law, taxpayers must file an income
tax return annually to determine their tax obligations.Income taxes are a source of revenue for
governments. They are used to fund public services, pay government obligations, and provide
goods for citizens.
Most countries employ a progressive income tax system in which higher-income earners pay
a higher tax rate compared to their lower-income counterparts. 3 The U.S. imposed the nation's

1
https://www.investopedia.com/terms/t/taxation.asp(last accessed on 15 Feb,2023)
2
https://www.i-blog.com/income-tax.html(last accessed on 15 Feb,2023)

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first income tax in 1862 to help finance the Civil War. After the war, the tax was repealed; it
was reinstated during the early 20th century.4
Income tax is a tax on the income of an individual or an entity. Income tax is the main source
of income for the government to carry out its functions. The jobs of government are not just
restricted to defense, law, and order, etc., but it also has to undertake activities like welfare
and development under sectors of health, education, rural development, etc. the government
also has to pay for its own administration. All of these activities need huge public finance
which is raised by the collection of taxes.

AIMS AND OBJECTIVES

The researcher aims to find out the concept of personal income tax and why it is needed in
our country.

HYPOTHESIS
Researcher presumes that there is not any kind of exemption.

RESEARCH METHEDOLOGY
The researcher will be relying on doctrinal kind of research.

RESEARCH QUESTION
Q1. Does income tax come under Direct tax?
Q2. What is personal income tax?

SCOPE OF STUDY
This research has benefited the researcher in knowing about the facts related to personal
income tax and legal provisions.

3
Organization for Economic Co-operation and Development. "Glossary of Tax Terms: Progression."
https://www.oecd.org/ctp/glossaryoftaxterms.htm#P(last accessed on 16 Feb,2023)
4
https://www.irs.gov/newsroom/historical-highlights-of-the-irs(last accessed on 16 Feb,2023)

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 CONCEPT OF INCOME
The Income Tax Act does not define the term Income but section 2 (24) of the Act describes
the various receipts which are included under the ambit of income.
1. Profits and gains.
2. Dividends
3. Voluntary contributions received by a charitable trusts
4. The value of any perquisite or profit in lieu of salary.
5. Any capital gains.
6. Any winnings from lotteries,
7. Crossword puzzles etc.
Who is a person under income tax?
A person is defined under section 2(31) of the act. The term ‘person’ includes –

1. An individual.

2. A Hindu Undivided Family.

3. A Company.

4. A Firm.

5. An association of persons or body of individuals whether incorporated or not;

6. A local authority; and

7. Every artificial judicial; person not falling within any of the preceding

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 income5

Taxpayers and Income Tax Slabs

5
https://blog.ipleaders.in/income-tax-act/(last accessed on 17 Feb,2023)

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Slab system means different tax rates are prescribed for different ranges of income. ... Income
tax has classified three categories of “individual “taxpayers such as: Individuals (aged less
than of 60 years) including residents and non-residents. Resident Senior citizens (60 to 80
years of age). Each of these taxpayers is taxed differently under the Indian income tax laws.
While firms and Indian companies have a fixed rate of tax calculated on their tax profits, the
individual,HUF, AOP and BOI taxpayers are taxed based on the income slab they fall under.6

People’s incomes are grouped into blocks called tax brackets or tax slabs. And each tax slab
has a different tax rate.Rate at which income is charged to tax increases with increase in
income.

6
https://tax.in/s/income-tax(last accessed on 17 Feb,2023)

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 LEGAL PROVISIONS RELATED TO INCOME TAX

There are references for taxes in ancient writings like Manusmurti and KautilyaArthashastra.
It was initiated in India in 1860 for the first time to defeat the financial crisis of 1857.
Accordingly, it is the income tax Act 1961 which is at present operative in India
The basis of every legislation in India is rooted in the constitution. As per article 265 of the
constitution, no tax must be levied or collected except by the authority of law. There are
various other provisions under the constitution that distribute the power.
Entry 82 of List I of Seventh Schedule of the Constitution of India grant power on Parliament
to impose taxes on income other than agricultural income. In this way, Income Tax is under
the Union list and therefore Central Government is in charge of the collection of income tax.
The Central Government has the authority to collect taxes on income aside from the tax on
agricultural income, which is being collected by the State Government. Entry 46 of List II of
the Seventh Schedule of the Constitution of India lays down that the State Government has
the authority to collect taxes on agricultural income.7

Schedule 7
List 1
Entry 82: Tax on Income other than the agriculture income.
Entry 83: Duties of customs including the export duties.
Entry 84: Duties of excise on tobacco and other goods manufactured or produced in India
except for alcoholic liquors for human consumption, opium, narcotic drugs, but including
medicinal and toilet preparations containing alcoholic liquor, opium or narcotics.
Entry 85 – Corporation tax
Entry 92A: Taxes on sale or purchase of goods other than newspapers, where such sale or
purchase takes place in the course of interstate trade or commerce.
Entry 92B – Taxes on consignment of the goods where such consignment takes place during
Inter-State trade or commerce.
Entry 92C – Taxes on services
Entry 97 – Any other matter which is not included in List II, List III and any tax not
mentioned in List II or List III.
List 2
Entry 46 – Taxes on agricultural income.
Entry 51 – Excise duty on all alcoholic liquors, opium and narcotics.
Entry 52 – Tax on entry of the goods into a local area for consumption, use or sale therein
(usually termed as Octroi or Entry Tax).

7
https://blog.ipleaders.in/income-tax-act/(last accessed on 18 Feb,2023)

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Entry 54 – Tax on sale or purchase of goods other than newspapers except for tax on
interstate sale or purchase.
Entry 55 – Tax on advertisements except advertisements in newspapers.
Entry 56 – Tax on goods and passengers that are carried by road transport or inland
waterways.
Entry 59 – Tax on professionals, trades, callings, and employment.
Important Terms and Definitions under The Income Tax Act, 1961
Assessment year and previous year
As per Section 2(9) of the Income Tax Act, 1961, states that assessment year means the 12
month period beginning on the 1st day of April every year. The assessee is required to file the
income tax return of the previous year in the assessment year. As per S.2(34) of Income Tax
Act, 1961, unless the context otherwise requires, the term “previous year” means the previous
year as defined in section 3.As per Section.3 of Income Tax Act, 1961, the term “previous
year” means the financial year immediately preceding the assessment year.8
Say, for example, the year starting from 1st April 2018 and ending on 31st March 2019 is the
assessment year 2018-19, the previous year would be 2017-18. The rates of assessment year
are taken into consideration.
Section 4 of the Income-Tax Act, 1961 is the Charging section of the Act
Accordingly, the section provides that :
The rates are prescribed under the finance act of every assessment year. Income tax for the
previous year is to be charged according to the given rates.
The taxable income is that of the previous year not the assessment year
The total income, computed according to the provisions of the act, is leviable
Tds or advance tax wherever applicable is to be charged

8
https://www.incometaxindia.gov.in/pages/acts/income-tax-act.aspx(Last accessed on 19 Feb,2023)

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WHAT IS TAX EVASION AND PENAL PROVISION FOR EVASION
OF TAX

Tax evasion is nothing but any activity that aims to hide, understate, or falsely report income
to reduce your tax liability. For example, not paying the tax or paying less than what is due is
considered to be tax fraud. It is essentially the criminal act of a person or a company
attempting to avoid paying their tax obligations. It includes concealing or fabricating income,
falsifying deductions without proof. Another tax evasion example is failing to declare cash
transactions, etc.9
What is the difference between tax exemptions and evasions?
For a layperson, technical terms like tax exemption, tax planning, tax avoidance, and tax
evasion can become quite challenging to comprehend. With little or no understanding of
these critical terminologies, taxpayers may fail to make the most of the benefits these
government provisions offer. Tax planning and tax evasion are two such terms. The
difference between tax planning and tax evasion is clear and simple to understand. Tax
planning is the act of strategizing to use or invest your money in ways that can help reduce
your tax burden. It helps you reduce the overall taxable income. However, tax evasion is a
malafied practice of avoiding paying taxes. Here’s a tabular comparison between the two
most commonly confused terms: tax exemptions and tax evasions.
Income tax evasion is a criminal offence in India. Under Chapter XXII of the Income-tax
Act, 1961, the tax evasion can attract hefty penalties along with evaded tax or in some cases
may even land you in jail.
Following are some of the instances, where non-compliance of Income Tax rules can result
into hefty penalty or even a jail of a maximum term of 7 years:
1) Not Filing Income Tax Return
If you do not submit for income tax return as required under the Section 139, sub section (1)
of Income Tax Act then the assessing officer can penalize you with a penalty of Rs 5,000 or
more.
2) Not providing PAN or quoting wrong PAN
If you do not provide your PAN number to your employer at the time of employment, 20%
TDS will be deducted from your salary instead of regular 10%. If the PAN you quoted is
incorrect, a penalty of Rs 10,000 may be slapped on you.
3) Not checking Form 26AS before income tax return filing
You should check the details of Form 26AS multiple times as any mismatch in the details can
lead to severe punishment. Similar punishment will be levied mismatch in income, expenses
and investments data.
4) Not paying Tax as per self-assessment

9
https://www.kotaklife.com/insurance-guide/savingstax/what-is-tax-evasion-and-what-are-the-penalties-for-tax-evasion-in-
india( Last accessed on 18 Feb 2023)

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As per Section 140 A (1) of Income Tax Act, if the tax payer fails to pay either wholly or
partly self-assessment tax or interest then the tax payer will be treated as a defaulter. As per
Section 221(1), a defaulter may be charged with penalty by the assessing officer. But if you
provide justified reasons for the delay in paying the tax then the assessing officer can exempt
you from paying penalty.
5) Concealing Income to evade tax
The penalty for not proving correct details of your income or concealing income tax will be
100% to 300% of the tax evaded as per section 271(C) of Income Tax Act. Under section 271
AAB, the penalty may vary under different scenarios:
a) If the tax payer admits the undisclosed income then only 10% of the previous year's
undisclosed amount along with interest will be levied.
b) If the tax payer does not disclose the undisclosed amount but does so in the return of
income furnished in the previous year, a penalty of 20% of the undisclosed amount along
with interest will be levied.
c) If the amount is undisclosed for the previous year then minimum 30% and maximum 90%
penalty can be levied.
6) Not Complying with income tax notice
In case a tax payer fails to comply with the notice issued by income tax department under
Section 142(1) or 143(2) then the assessing officer can issue a notice, either asking to file the
return of income or to furnish in writing all the details of assets and liabilities.10
Section 276C all the Income Tax Act, 1961, states willful attempt to evade tax, etc. The
Section states that if any person willfully in any matter tries to evade any tax, penalty or
interest chargeable impossible and reports his income under the Income Tax Act, then such a
person without any prejudice to any penalty that may be impossible on him under any other
provisions of the Income Tax Act, will be held punishable with rigorous imprisonment for a
term up to 6 months which main event extent up to seven years along with the fine if the
amount involved is more than Rs 25 lakhs. In other cases, the rigorous imprisonment will be
not less than a term of 3 months which we also extend up to two years along with the fine.
From Section 276C of the Income Tax Act, it can be observed that a person can only be
prosecuted under the provision of the said statute, only if a person had willfully attempted to
evade any tax, penalty or interest chargeable or imposable under the Income Tax Act. It is to
be noted that what is punishable here is not a near failure to disclose correct income but a
dishonest or malafide intention in committing an offence like tax evasion.
Section 277 of the Income Tax Act states the false statement in verification, etc. The Section
states that if any person tries to make a statement in any verification under the income tax act
or any rule made thereunder and delivers an account or statement which is false and the
person either knows or believes it to be false or does not believe it to be true shall be held
punishable with rigorous imprisonment for a term of not less than six months which may
extend up to seven years along with the fine if the amount involved is more than Rs 25 lakhs.
In other cases, the rigorous imprisonment will be for a term of three months which may
extend up to two years along with the fine.
10
https://timesofindia.indiatimes.com/business/faqs/income-tax-faqs/income-tax-evasion-know-about-penalties-under-
income-tax-act/articleshow/59895566.cms( Last accessed on 19 Feb,2023)

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From the reading of Section 277 of the Income Tax Act, it can be observed that a person can
only be prosecuted under the said provision only if a person had intentionally and willingly
made a wrong statement in verification to fulfil his/her motive.
After reading Section 276C and Section 277, it can be stated that any bonafide mistake on the
part of the person which eventually leads to tax evasion or attempt to evade tax or false
verification cannot be identified as an offence under the Income Tax Act, 1961.11

11
https://blog.ipleaders.in/is-every-tax-evasion-and-false-verification-punishable-under-the-income-tax-act-
1961/
#Prosecution_for_the_offence_of_tax_evasion_and_false_verification_under_the_Income_Tax_Act_1961(last
accessed onn 20 Feb,2023).

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 CONCLUSION

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.Individual income tax is also referred to as personal
income tax. This type of income tax is levied on an individual's wages, salaries, and other
types of income. This tax is usually a tax the state imposes. Because of exemptions,
deductions, and credits, most individuals do not pay taxes on all of their income.
Tax exemption is the monetary exclusion that reduces the taxable income. You can get
complete relief from tax or reduced tax rates or tax will be applicable on a certain portion.
Tax exemption is therefore a statutory exemption to a general rule instead of the absence of
taxation in certain circumstances.One must bear in mind that not all income can be taxed on
slab basis. Capital gains income is an exception to this rule. Capital gains are taxed
depending on the asset you own and how long you’ve had it. The holding period would
determine if an asset is long term or short term. The holding period to determine nature of
asset also differs for different assets.
The income tax department is a government agency. The Act empowers the income tax
department to collect direct tax on behalf of the Government of India.
Income tax is a type of tax that the central government charges on the income earned during a
financial year by the individuals and businesses. Taxes are sources of revenue for the
government. Government utilizes this revenue for developing infrastructure, providing
healthcare, education, subsidy to the farmer/agriculture sector and in other government
welfare schemes. Taxes are mainly of two types, direct taxes and indirect form of taxes. Tax
levied directly on the income earned is called as direct tax, for example Income tax is a direct
tax. The tax calculation is based on the income slab rates applicable during that financial
year.
Direct Taxes are broadly classified as :Income Tax – This is taxes an individual or a Hindu
Undivided Family or any taxpayer other than companies, pay on the income received. The
law prescribes the rate at which such income should be taxedCorporate Tax – This is the tax
that companies pay on the profits they make from their businesses. Here again, a specific rate
of tax for corporates has been prescribed by the income tax laws of India.
By law, taxpayers must file an income tax return annually to determine their tax obligations.
The revenues from here are an important source of income for the government of India. This
type of income tax is levied on an individual's wages, salaries, and other types of income
such as pensions, interest, and dividends.The money spent on the development of roads,
schools, and hospitals, market regulations or legal systems, etc. is raised by the revenue
generated by the collection of taxes. Redistribution of resources by the richer section to the
poorer section of the society.Taxes are levied on certain products to eliminate externalities
such as the taxes on tobacco to discourage smoking. So paying income tax fairly is a kind of
contribution towards the growth of the country.

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 BIBLIOGRAPHY

1. https://taxsummaries.pwc.com/india/individual/taxes-on-personal-income
2. https://www.business-standard.com/about/what-is-personal-income-tax-rate
3. https://cleartax.in/s/income-tax
4. https://www.investopedia.com/terms/i/incometax.asp
5. https://blog.ipleaders.in/income-tax-act/
6. https://www.aegonlife.com/insurance-investment-knowledge/income-tax-act-1961/

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