Basic Concepts of Income Tax

The person1, whose Total income3 exceeds Maximum Taxable limit of income in previous year3, is called as an assessee & is chargeable to Tax at the rates prescribed in finance act for that relevant previous year. We are discussing here the Basic Concepts of Income Tax Act.

Person  (Sec. 2(31):

It includes..

  • Individual
  • Companies (Public or Private)
  • Partnersip Firms including LLP (Limited Liability Partnership)
  • APO / BOI (Association of Persons or Body of Association)
  • HUF (Hindu Undivided Family)
  • Local Authority
  • Any other official persons.

Total Income :

It is an income arrived at after deduction of all deductions & is a final income to be taxed.

Gross Total income*                              xxxxx

Less : Deductions                                   (xxx)

Net Total Taxable income                       xxxxx

 

*Gross Total Income :

            Income is taxable under below mentioned heads.

  1. Salary
  2. House Property
  3. Profits & Gains from Business or Profession
  4. Capital Gains
  5. Other Sources.

 

Previous year :

The income of a particular Financial Year is taxable & is taxed in following year (or succeeding year). 

Assessment year :

It is a succeeding year in which the income of previous year is assessed.

Refer below table..

Previous year ————————————————-Assessment Year

   2015-16             (From 1st April to 31st March)             2016-17

 

The Basic Concepts of Income Tax is, the income of 2015-16 (Financial Year) is taxable in 2016-17.

Thus, for 2016-17 in above chart , 2016-17 is an Assessment year for the financial year 2015-16.

 

Advanced Concepts ..

For newly set up business, the previous year starts from the date of setup of business & ends on 31st of March.

Exception :

  • Shipping Business of Non Resident (Sec. 172)

>> the income is taxable in the same year in which it incurred..

First of all, the Assessee must be a non-resident & owns or chartered a ship, which carries passenger, live stock, mail / goods, shipped at a port in India.  Also it is not necessary that non resident have an agent or representative in India. 

  • Person leaving India (Sec. 174)
  • The Body corporates (AOP / BOI) are formed for short duration (Sec.174) for a particular event / purpose & the same purpose or event is over.
  • Person likely to transfer property to avoid tax (Sec. 175)
  • Discontinued Business (Sec.176). It is at the discretionary of AO (Assessing Officer) to tax in same year.

          AOP (Association of Persons) :

            Group of persons (whether individuals, HUF, Companies, Firms etc.), who join together for common purpose/s, for income producing activity.

          BOI (Body of Individuals) :

            Group of individuals (Individuals only), who join together for common purpose/s, whether or not to earn income.