BASIC CONCEPTS OF INCOME TAX

tax, forms, income

Tax is like a jigsaw puzzle. Like in puzzle in order to get a complete picture, one put it together piece by piece. In the same manner to understand the greater picture of the intricacies of taxation, one has to have the hold on the basics.

 

 

                                 A QUICK RECAP

 

In the last session writer introduced the basic definition of taxation &, it’s development gradually from ancient time to modern time.

LAGAAN- yes !! the lagaan from the Aamir khan’s movie “lagaan”.

 

What is the current position of taxation in modern times?

Then writer tried to cast light on the characteristics of the tax. Furthermore, discuss the canons of taxation i.e., of equity, certainty, convenience & economy.

Further one has discussed the types of tax which are basically indirect and direct taxes. Moving forward writer tries to put forward the constitutional validation of the taxation law of India.

Discussed the sources of income tax law & about the process of formation of the Finance act from the Finance Bill.

 

 

 

CHARGING SECTION OF INCOME TAX-[SEC4]

  • Every PERSON
  • whose total income of
  • the PREVIOUS YEAR
  • exceeds the maximum amount which is not chargeable to income tax (i.e exemption limit 250000/300000/500000)
  • is an ASSESSEE and
  • chargeable to income tax at rates or rates
  • prescribed in the FINANCE ACT
  • for the relevant previous year

 

POINTS TO REMEMBER

  • Income tax is an annual tax on income
  • Income of the previous year is taxable in the assessment year

{EXCEPTIONS- Sec172, 174, 174A, 175 & 176}

  • Tax rates are fixed by the annual Finance Act.
  • Tax is charged on every person
  • Tax is charged on total income of the Assessee

#the concept of total income is different as that of taxable income.

 

ASSESSEE [SEC 2(7)]

Means a person by whom any tax or any other sum of money is payable under income tax act and includes –

  1. every person in respect of whom any proceeding has been taken for the assessment of:
  2. his income or income of any other person in respect of which he is accessible or
  3. loss sustained by him or by such other person or
  • amount of refund due to him or to such other person

 

  1. every person who is deemed to be assessee under any provision of the income tax act {See note}
  2. every person who is deemed to be assessee in default under any provision of the income tax act. A person is said to be assessee in default if he fails to comply with the duties imposed upon him under the Income Tax Act [see note]

 

NOTES

 

  1. As per section 160 (2), the person referred to in section 160(1) being the representative assesses (i.e. Guardian or manager in case of minor lunatic etc., agent of non-resident; trustees in case of trust) are regarded as deemed assesses for the purpose of Income Tax Act.

 

  1. instances of SSC in default are –
  2. section 140A (3) that is the failure to deposit self-assessment tax
  3. section 201(1) date is failure to deduct or pay TDS
  • section 220(4) that is failure to pay the amount of demand notice

 

 

 

PERSON [sec2(31)]

 

Under sec2(31) of the income tax law, the person is namely divided into the following categories-

  • An individual
  • Hindu undivided family (HUF)

 

 

Brainstorming point-

Why only the Hindu Undivided Family? Why not the Muslim undivided family, Christian undivided family or the Hindu Nuclear family per se?

Please let me know your views in the comment box.

 

 

  • A company
  • A firm
  • An association of persons (AOP) or a Body of Individuals (BOI)
  • A local authority
  • Every artificial juridical person not falling within any of the preceding sub clauses.

 

Association of persons:

Association of persons means two or more persons who join for a common purpose with a view to earn an income. Therefore, if two or more persons join hands to carry on a business but do not constitute a partnership, they may be assessed as an Association of Persons (AOP).

 

 

Body of Individuals (BOI)

Body of individuals means a group of individuals who carry on some activity with the objective of earning some income. It would consist only of individuals. Entities like companies or firms cannot be members of a body of individuals.

 

 

A local authority

the expression of local authority means

  • panchayat or
  • municipality or
  • cantonment board

 

 

Artificial judicial persons

This is residuary classification. These entities are not natural persons but are separate entities in the eyes of law. They can be sued through the person managing them. Bar Council, God, idols, and deities are artificial persons.

 

TRICK- OMG- Oh! My God- “Kanji Virrudh Kanji” The Man Who Sued God

 

 

Assessment year sec2(9)

Assessment years mean the period of 12 months commencing on the first day of April every year. It is, therefore, a period from 1st of April to 31st of March. It is the year immediately succeeding the previous year.

 

 

Previous year sec (3)

Previous year means the financial year immediately preceding this assessment year

 

But in case of newly set up or profession or a new source of income, the previous year shall be the period beginning with the date of setting up of such business or profession or the date on which new source of income comes into existence.

 

In other words, 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.

 

Income tax is charged on the total income of the previous year at the rates prescribed by the relevant Finance Act for the assessment year.

 

 

 

 

POINTS TO REMEMBER

  • the financial year ending on 31st March will be the uniform previous year for the assesses and for all sources of income. if for any reason, the assesses want to close the book of account on any other date he can do so but he would be required to make up is an account on 31st March for income tax purpose.

 

  • each financial year is both the previous years as well as the assessment year.

 

 

It is the previous year for the income on during that financial year and the assessment year for the income during a preceding previous year.

for example, the Financial year 2020-21 is the previous year for the current income end assessment year for the income and during the financial year 2019 -20.

 

 

References

  • Constitution of India, 1949
  • Taxman’s Income tax Act, 1961
  • Taxman’s Income tax Rules, 1962

 

 

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