BASIC CONCEPTS OF INCOME TAX – PART 2

taxes, tax office, tax return

                                                       A QUICK RECAP

In the last session, we laid emphasis on some of the basics of taxation. We have talked about the charging section of the income tax i.e., sec4. Then we have discussed the assessee [Means a person by whom any tax or any other sum of money is payable under income tax act] i.e., given in sec2(7).

Furthermore, we have discussed the types of the person i.e., sec2(31) according to the income tax act. I remembered that I have given a brainstorming point under the head of the HUF & looking forward to your positive responses. Then we have briefly discussed the paramount heads of person per se.

Moving forward, we have discussed the previous year[sec3] & the assessment year[sec2(9)] & tried to correlate both the terms.

In short, the year in which income is earned is known as the previous year, and the next year in which this income is taxable is known as the assessment year.

Each financial year is both the previous years as well as the assessment year.

 

 

Taxation of previous year’s income during the same year

So, we have learned that an individual earned the income in the previous year & the tax is levied on that income in the next year i.e., the assessment year.

But as usual, there are some exceptional conditions in which taxpayers have to pay the tax in the same year in which one earned the income.

So, now in this case the previous year is the same as that of the assessment year.

 

  1. Shipping business of non-residents: [Section 172]

In the case of a non-resident who is carrying on a shipping business and earns an income of fare/ freight for carrying passengers, goods, etc. from a port in India, the income tax is charged before the ship leaves the Indian port. Therefore, the master of the ship is under an obligation to pay the tax.

In this case, 7.5% of the amount of fare/ freight (including the amount of demurrage charge or handling charge or any other amount of similar nature), shall be deemed to be the income of such assessee on which the income tax will be charged.

 

  1. Assessment of persons leaving India: [Section 174]

Where Assessing Officer is of the opinion that any individual may leave India during the current assessment year, with no intention of returning, he shall charge the tax on total income as under:

  • For the previous year already completed: tax will be calculated by using the tax rates applicable to their relevant AY (assessment year).

 

  • For the assessment year in which he departs: tax will be calculated by using the rates of advance tax provided by that assessment year itself.

 

 

3.       Assessment of AOP or BOI or artificial juridical person formed for a particular event or purpose: [Section 174A]

Where it appears to the Assessing Officer that any association of persons or a body of individuals or an artificial juridical person formed for a particular event or purpose and is likely to be dissolved in the assessment year in which it is formed or immediately after such assessment year, the total income of such AOP/BOI, for the period from the expiry of the previous year for that assessment year up to the date of its dissolution (i.e. assessment year), shall be chargeable to tax in that assessment year itself.

 

4. Transfer of property to avoid tax: [Section 175]

If it appears to the Assessing Officer during any current assessment year, that any person is likely to charge, sell, transfer, dispose of or otherwise part with any of his assets with a view to avoiding any payment of his tax liability, then the total income of such person for the period from the expiry of the previous year for that assessment year (i.e. from 1st April of that assessment year) till the date when the assessing officer commences proceedings, shall be chargeable to tax in the same assessment year.

 

5. Discontinued business: [Section 176]

Where any business or profession is discontinued in any assessment year, the income of the period from expiry of the previous year for that assessment year up to the date of such discontinuance may at the discretion of the assessing officer, be charged to tax in that assessment year.

Any person discontinuing any business or profession shall give to Assessing Officer (AO) notice of such discontinuance (NIC) within 15 days thereof.

 

 

Point to remember

In the first four exceptions given above, it is mandatory for the AO to charge the tax in the same previous year. On the other hand, in the fifth exception given above the AO has the discretionary power and as such he may charge income tax in the same P.Y. or may wait till the AY.

 

 

 

 

 

RELEVANT PREVIOUS YEARS FOR UNDISCLOSED SOURCES OF

                                                INCOME

In respect of certain undisclosed sources of income, the previous year will be as follows—

 

   SEC            UNDISCLOSED SOURCES CORRESPONDING P.Y. FOR

            THAT SOURCE

    68              Unexplained Cash Credits The year in which books of accounts are found credited
    69               Unexplained investments The year in which the investment made
    69A Unexplained money, bullion, jewelry, or other

valuables

‘The year in which it is found
    69B              Undisclosed investments The year in which the investment made
    69C              Unexplained expenditure The year in which it was incurred
    69D The amount borrowed/repaid on hundi in excess of other than by way of account payee cheque.

 

The year in which the amount was borrowed or repaid on hundi.

 

A BRIEF ON HOW TO COMPUTE “TAXABLE INCOME” & “TAX”

                                             THEREON

Total income of an assessee and tax payable by the taxpayer is normally, computed by following the given steps:

 

Step—1 Find out one’s residential status as per section 6.
Step—2 Find out one’s gross income under various heads of income (like Salary, House property, etc.). Out of such gross income, deduct the permissible deductions of these heads.
Step—3 Aggregate the incomes of these heads, which is called as ‘gross total income’ (GTI).
Step—4 From ‘gross total income’ deduct the deduction of Chapter-VIA (i.e., deductions of section 80C to 80U). The amount so calculated will be ‘total income’ it is also called as ‘taxable Income’
Step—5 Calculate the amount of tax on such ‘total income’ at the rates provided by the relevant Finance act (i.e., normal tax rates) and rates provided by various sections of Income tax act (i.e., special tax rates like tax on capital gain provided by section 112 and 111A).

 

References

  • Taxman’s Income tax Act, 1961
  • Taxman’s Income tax Rules, 1962

 

 

 

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