In India, income tax is a direct tax levied by the central government on the income of individuals, companies, and other entities. The tax is governed by the Income Tax Act, 1961, and is a key source of revenue for the government.
Concepts of Income:
1. Salary and Wages:
- Basic Salary:- Regular income from employment.
- Bonuses:- Additional compensation based on performance.
- Commissions:- Earnings from sales or targets achieved.
- Allowances:-Partially taxable allowances such as house
rent allowance (HRA) and travel allowances.
2. Business and Professional Income:
- Net Profit: Income from business operations after deducting
expenses.
- Freelance Income: Earnings from freelance work or contract-
based services.
3. Investment Income:-
- Interest Income: Earnings from savings accounts, fixed
deposits, bonds, etc.
- Dividends: Payments received from equity investments.
- Capital Gains:- Profits from the sale of investments like
stocks, bonds, or real estate.
4. Rental Income:
- Residential Rent: Income from renting out residential
properties.
- Commercial Rent: Income from renting out commercial
properties.
5. Pension and Retirement Income:
- Pension Payments: Regular payments from pension plans or
retirement funds.
- Annuities:Periodic payments from annuity contracts.
6. Royalty Income:
- Intellectual Property: Earnings from patents, copyrights, and
trademarks.
7. Other Income:
- Alimony: Payments received from a former spouse or
partner (tax treatment varies).
- Gifts and Inheritances: Certain gifts or inheritances may be
taxable under specific conditions.
8. Miscellaneous Income:
- Lottery Winnings: Earnings from lotteries, contests, or
gambling.
- Side Hustle Income: Earnings from secondary jobs or gig-
based work.
9. Non-Taxable Income (for reference):
- Certain Gifts and Inheritances: May not be taxable under
specific thresholds or conditions.
In income tax law, the term "person" includes:
1. Individual: -A natural person, such as a citizen or resident.
2. Hindu Undivided Family (HUF):- A family unit pooling
resources.
3. Company: A legal entity formed under company law.
4.Firm: A partnership or limited liability partnership (LLP).
5. Association of Persons (AOP) / Body of Individuals (BOI):
Groups of individuals or entities working together.
6. Artificial Juridical Person: Entities like trusts, societies, or
cooperatives.
7. Trust: A fiduciary arrangement managing assets for
beneficiaries.
8. Estate of Deceased Person: Income and assets managed by
executors of a deceased person.
Definition of Assessee:
An assessee is a person or entity who is subject to tax
assessment under the tax laws.
• Anyone with tax proceedings initiated for their income
• Anyone assessable for another person’s income
• Anyone due a tax refund
• Anyone deemed an assessee under theAct
An assessee in default is someone who:
• Fails to deduct or pay tax at source
• Fails to pays advance income tax on time
Permanent Account Number:
PAN (Permanent Account Number:- is a unique 10-character alphanumeric identifier issued by the Income Tax Department of India. It is used for tracking financial transactions and tax obligations. PAN is mandatory for filing income tax returns,
conducting high-value transactions, and other financial activities.
The Assessment Year (AY):- is the year in which income is assessed for tax purposes. It follows the Financial Year (FY) in which the income was earned.
1. Definition:- The Assessment Year is the year immediately following the Financial Year. It is the period during which the income earned in the Financial Year is evaluated and assessed for tax.
2. Example:
- Financial Year (FY): April 1, 2023, to March 31, 2024.
- Assessment Year (AY): April 1, 2024, to March 31, 2025.
3. Purpose:-During the Assessment Year, taxpayers file their income tax returns, and the tax authorities assess the income and determine the tax liability based on the income earned in the preceding Financial Year.
In summary, the Assessment Year is the period in which the income from the previous Financial Year is assessed for tax purposes.
Taxation of previous year’s income during the same year: Exceptions of income pf previous year is taxable in the assessment year :
1. Income of non-resident Shipping companies
2. Income of person Leaving India
-
Income of Association of Persons or Bodies of Individuals Formed for a particular Event or purpose
-
Income of persons trying to Alienate their assets:- individuals attempting to alienate assets with the intention of avoid paying tax
-
Income of discontinued Business:- if business is discontinued the income of the period from the previous year up to the date of discontinuation is taxed in the same assessment year .
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