Today we will discuss about some frequently used terms while talking about income tax and its applicability. We know all these terms and heard about them a lot of times but might not be knowing the exact meaning, so now we discuss about their general meaning as well as technical meaning.
Lets start our journey,
Income Tax: – Every person is liable to pay income tax if his total income exceeds the minimum exempted slab of income as prescribed by the Central Government for the previous year. Income Tax Act, 1961 deals with provisions of tax-ability of various types of income. Income tax is direct in nature meaning that it is being paid by the person who bears it. Income Tax is of progressive nature i.e. tax increases with increase in income. It is an annual tax and charged on the total income of the previous year and tax able in assessment year at the rates applicable to that assessment year.
Person: – Section 2(31) of the Income Tax Act, 1961 provides the definition of the word person which includes
An Individual (Natural Person/Human being covering all whether male/female/minor everybody)
a Hindu Undivided Family (a separate entity as per income tax act meaning a Hindu Family consisting of all persons lineally descended from a common ancestors including wives and unmarried daughters)
a Company (any company incorporated under Indian laws or foreign laws or declared as such by general/special order of CBDT)
a Firm (as defined under the Partner ship Act, 1932)
an Association of Person (AOP) or a Body of Individuals (BOI) whether incorporated on not (they may or may not come together for the purpose of earning income)
a Local Authority (covering municipality or district boards etc.)
Every Artificial juridical person, not falling within any of the preceding sub-clauses
Total Income: -“Total Income” means the total amount of income referred to in the section 5, computed in the manner laid down in this Act
in general sense it means the income on which tax is being paid. It is the income arrived at after giving effect to the deductions available under chapter VI-A of the Income Tax Act, 1961 (Section 80C to Section 80U, generally known as payment related to LIC premium, Mediclaim, Children Tuition fee etc.)
Minimum Exempted Slab: –Different Rates of Taxes are applicable for different types of assessee in India. Further there are some specified rates of tax for some specific transactions viz. Short Term Capital Gains Tax, Long Term Capital Gains Tax etc. Different Slabs of Tax for Different Assessees are as follows: –
For Individuals, HUF , AOP, BOI
Up to Rs. 2,50,000 Nil
From Rs. 250001 to Rs. 500000 5%
From Rs. 500001 to Rs. 1000000 20%
Above Rs. 1000000 30%
For Senior Citizen i.e. person above the age of 60 years but less than 80 years then First slab of Rs. 2,50,000/- stand increased to Rs. 300000/-.
For Super Senior Citizen i.e. person above the age of 80 years then first slab of Rs. 250000/- stand increased to Rs. 500000/-
There is no exemption limit in case of Partnership Firm or company.
Previous Year: – Section 2(34) of the Income Tax Act, 1961 says that previous means the previous year as defined in section 3 of the said Act and the section 3 reads out as below: –
For the purpose of this Act “Previous Year” means the financial year immediately preceding the assessment year:
Provided that, in case of a business or profession newly set up, or a source of income newly coming into existence, in the said financial year, the previous year shall be the period beginning with the date of setting up o the business or profession or, as the case may be, the date on which the source of income newly comes into existence and ending with the said financial year.
This is the technical meaning as per the Income Tax Act, 1961 and as per this previous year means the financial year immediately preceding the assessment year and Financial year starts from April 1st and ends on 31st March so in general financial year in which income is earned will be the previous year for all assessee and for all source of incomes except in case of newly set business/profession or any other source of income coming into existence then previous year will start from that date only but will end on 31st March of that year. E.g. if A starts his new business on 1st June/July 2018 then previous year will start from 1st June/July but will end on 31st March 2019.
Assessment Year: –Section 2(9) of the Income Tax Act, 1961 deals with definition of Assessment Year, which provides
Assessment year means the period of 12 months commencing on the 1st Day of April every year.
This is the year in which return of income is filed for the income earned during the previous year. Previous year may or may not be of 12 months but assessment year is always of 12 months.
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