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Corporate Tax Planning

Notes the government for those who have overpaid. Income tax systems will often have deductions
available that lessen the total tax liability by reducing total taxable income. They may allow losses
from one type of income to be counted against another. For example, a loss on the stock market
may be deducted against taxes paid on wages. Other tax systems may isolate the loss, such that
business losses can only be deducted against business tax by carrying forward the loss to later
tax years.

Self Assessment

State whether the following statements are true or false:
4. A true income tax was first implemented in Britain by William Pitt the Younger in his

budget of December 1798.
5. Indirect Taxes Administration Enquiry Committee was appointed in the year 1958.

6. A flat tax taxes differentially based on how much has been earned.

1.3 Overview of Income Tax Law in India

Income tax is a tax levied on the total income of the previous year of every person. A person
includes an individual, Hindu Undivided Family (HUF), Association of Persons (AOP), Body of
Individuals (BOI), a firm, a company etc. Income tax is the most significant direct tax. The income

tax law in India consists of the following components is shown in Figure 1.1:
Figure 1.1: Components of Income Tax Law

Source: http://220.227.161.86/18878sm_dtl_fi nalnew_cp1.pdf
The various instruments of law containing the law relating to income tax are explained below:
1. Income tax Act: The levy of income tax in India is governed by the Income tax Act,
1961. This Act came into force on 1st April, 1962. The Act contains 298 sections and XIV
schedules. These undergo change every year with additions and deletions brought about
by the Finance Act passed by Parliament. In pursuance of the power given by the Income
tax Act, 1961 rules have been framed to facilitate proper administration of the Income tax
Act.
2. Finance Act: Every year, the Finance Minister of the Government of India presents the
Budget to the Parliament. Part A of the budget speech contains the proposed policies of the

Government in fiscal areas. Part B of the budget speech contains the detailed tax proposals.
In order to implement the above proposals, the Finance Bill is introduced in the Parliament.
Once the Finance Bill is approved by the Parliament and gets the assent of the President, it
becomes the Finance Act.

3. Income tax Rules: The administration of direct taxes is looked after by the Central Board of
Direct Taxes (CBDT). The CBDT is empowered to make rules for carrying out the purposes
of the Act. For the proper administration of the Income tax Act, the CBDT frames rules from
time to time. These rules are collectively called Income tax Rules, 1962. It is important to
keep in mind that along with the Income tax Act, 1961, these rules should also be studied.

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