1. Person: Income-tax is charged in respect of the total income of the previous year of every person. Hence, it is important to know the definition of the word person. As per section 2(31),
Person includes:
• an Individual
• a Hindu Undivided Family (HUF)
• a Company
• a Firm
• an Association of Persons or a Body of Individuals (BOI) whether incorporated or not
• a Local Authority
• every Artificial, Juridical person, not falling within any of the above categories
2. Assessee: As per Section 2(7) of the Act according to which assessee means a person by whom any tax or any other sum of money (i.e. interest, penalty etc.) is payable under the Act and includes:
A) Every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or assessment of fringe benefits or of the income of any other person in respect of which he is assessable or to determine the loss sustained by him or by such other person or to determine the amount of refund due to him or to such other person.
B) Every person who is deemed to be an assessee under any provision of this Act.
C) Every person who is deemed to be an assessee in default under any provision of this Act.
• An assesses may get income from different sources, eg: salaries-house property income-profits and gains of business or profession - capital gains income from other sources like interest on securities , lottery winnings, races etc.
Income from each of these sources calculated first to find out the gross total income, and then permissible deduction allowed arriving in total income according to sec 80 c to 80 u. Every person whose taxable income in the previous year exceeds the minimum taxable limit is liable to pay income tax during the current financial year at the rates applicable to the current financial year.
3. Assessment Year: As per Section 2(9) “Assessment year” means the period of twelve months commencing on 1st April every year and ending on 31st March of the next year. Income of previous year of an assessee is taxed during the following assessment year at the rates prescribed by the relevant Finance Act.
4. Previous Year: As per Section Section 3Income earned in a year is taxable in the next year. The year in which income is earned is known as previous year.
From the assessment year 1989-90 onwards, all assessees are required to follow financial year (i.e. April 1 to March 31) as previous year. The uniform previous year has to be followed for all sources of income.
In case of newly set up business or profession or a source of income newly coming into existence, the first previous year will be the period commencing from the date of setting up of business/profession or as the case may be, the date on which the source of income newly comes into existence and ending on the immediately following March 31.
5. Exceptions to the General Rule
Generally income earned in the previous year is taxed in the assessment year. But there are certain exceptions to the general rule. Ie the previous year and assignment year are same; the Assessee is liable to be assessed in the same year in which he earns the income in the following case,
i. Income from non resident shipping company
ii. Income of person leaving India
iii. Income of person likely to transfer assets to avoid tax
iv. Income from discontinued business.
6. Gross Total Income
It is the aggregate taxable income under the different heads of income such as income from salary, income from house property, income from profits or gains of business, capital gains and income from other sources. Ie total income computed in accordance with the provision of the act before making any deductions under Sec 80 C to 80 U
7. Total Income Sec 2(45)
Total income is arrived after making various deductions from gross total income under section 80 C to 80 U. It is computed on the basis of residential status of an Assessee
8. Residental Status
Income tax is charged on total income earned by an Assessee during the previous year, but at the rate applicable to the assessment year. It shall be determined on the basis of the residential status of the Assessee. Sec.6 of the act divides the Assessee into 3 categories:
i. Resident
ii. Non resident
iii. Not ordinary resident
There is basic and additional condition for determining the residential status of different assessee.
A. Basic Conditions
i. If he has been India in that previous year for a period or periods amounting in all to 182 days or more
ii. if he has been India for a period or periods amounting in all to 365 days or more, during the 4 years preceding the relevant previous year and has been in India for a period or periods amounting in all to 60 days or more in that previous year.
B. Additional Conditions
i. An individual who has been in India at least 2 out of 10 previous years preceding the relevant previous year.
ii. The individual has been India for at least 730 days in all during the 7 previous year preceding the relevant previous year.
9. Resident and Ordinary Resident
Persons who are resident in India is popularly known as ordinary resident. An individual, to become an ordinary resident in India in any previous year should also satisfy the two additional conditions along with basic conditions.
Not Ordinarily Resident Individual- Sec 6(6)
If an individual fulfills any one of the basic conditions (specified in the case of resident) but doesn’t satisfy both additional conditions, he becomes a ‘not ordinary resident’
Non Resident Individual
As per section 2(30) of the income tax act, if an Assessee doesn’t fulfill any of the two basic conditions or tests will be treated as non resident Assessee during the relevant previous year.
