The Income tax is a very subjective issue with respect to the Indian citizens, where some sections find it very simple and precise to understand and whereas some have major difficulty in getting used to the terms and nature of the Indian Income Tax Act. The Indian Income Tax Act is not merely a reflection of getting what the Government wants from you rather is an ever changing theory which fluctuates from time to time as a result of needs of the country over s time period. There are certain basic terms which one must understand which in order to get a better view of the Income Tax system which prevails in India. Some of them are listed below:
Union budget: Most of the people are unaware of this fact but the truth is that the tax structure of our country is directly affected by the Union Budget of India. The Union Budget acts as the basis on which the taxability of a person depends upon and with time it keeps on changing according to the need of the system. For an example: the union budget of 2011-12 has raised the exemption limit in respect of men of men’s from Rs. 1, 60, 000 to Rs. 1, 80, 000 and from now onwards the same shall be applicable. Therefore, we find how the Union Budget affects our taxability.
Assessee: It has been observed, that in most cases, people have a misconception about the word, assessee. They are in a wrong sight of taking the taxpayer and the word assessee to be completely distinct, but in true scenario, the case is very much simple and straight forward. Assessee refers to the person whose income is being assessed. Every person who files his or her return is known as the assessee, even though if a person has no tax liability yet he gets his income assessed, he shall be known as an assessee. Therefore, a person who is getting his income assessed is known as an assessee.
Persons liable to pay income tax: To be very explicit, every person whose income is more than the exempted limit as prescribed by the Income Tax department is liable to pay taxes. The group of individuals has been categorized into four major groups from the presentation of the Union Budget 2011-12, namely, males, females, senior citizens and very senior citizens. These four classes of people have different tax liabilities and each of them has a certain exemption limit, falling under which will allow the assessee not to pay any taxes. The current taxability structure is presented as follows:
| Category | Nil rate | 10% rate | 20% rate | 30% rate |
| Males | Upto Rs. 1, 80, 000 | Rs. 1, 80, 000 to Rs. 5, 00, 000 | Rs. 5, 00, 000 to Rs. 8, 00, 000 | Rs. 8, 00, 000 and above |
| Females | Upto Rs. 1, 90, 000 | Rs. 1, 90, 000 to Rs. 5 , 00, 000 | Rs. 5, 00, 000 to Rs. 8, 00, 000 | Rs. 8, 00, 000 and above |
| Senior citizens | Upto Rs. 2, 50, 000 | Rs. 2, 50, 000 to Rs. 5, 00, 000 | Rs. 5, 00, 000 to Rs. 8, 00, 000 | Rs. 8, 00, 000 and above |
| Very senior citizens | Upto Rs. 5, 00, 000 | - | Rs. 5, 00, 000 to Rs. 8, 00, 000 | Rs. 8, 00, 000 and above |
Added to it, the taxability of a person will also be affected by education cess and secondary and higher education cess @ 2% and 1%, respectively.
Assessment year: This is perhaps the most common area of mistake where mistake is done. Assessment year refers to the period of 12 months commencing from the first day of April every year. It is therefore, the period from 1st of April to 31st of March. Things can be put in a clear cut way, with the help of an example. Let take the present year 2011. In this case, from 1st April 2011, the assessment year 2011-12 will begin and the last date of this year shall be 31st March 2012. Tax is levied in each of the assessment year, with respect to or on the total income earned by the assessee in the previous year.
Previous year: The Indian Income Tax Act states that the an assessee is liable to pay taxes in respect of the income which has been earned in the previous year and hence, the concept on previous year comes into existence. Previous year is regarded as the year preceding the assessment year. For instance, if the current assessment year is 2011-12, then in such case, the previous year shall be 2010-11; therefore, the assessee shall be liable to pay taxes on the income earned during the assessment year 2010-11.
Residential status: The foremost need in determining the residential status of an assessee is to fulfill two basic obligations which are as follows:
* The assessee is in India for 60 days or more during the relevant previous year and has been in India for 365 days or more during four previous years immediately preceding the relevant previous year, or,
* The assessee is in India for a period or periods amounting in all to 182 days or more in the relevant previous year.
Perhaps these are the two basic criteria for an assessee to have a status of a resident in India.
Income liable to Tax: To be definite, one can say that every income which is earned by the assessee apart from certain incomes which have specifically been declared as exempted by the Act forms a part of income which is liable to tax. In such a scenario, all income forms a part of taxable income. There are certain general incomes which are liable to tax and they are in form of:
* Incomes received or deemed to be received in India
* Incomes which accrue or arise in India or deemed to accrue or arise in India
* Incomes from a business connection in India
* Income from any property, asset or source of income situated in India
* Income from transfer of any capital asset situated in India
* Any income which falls under the head ’Salaries’ if it is earned in India
* Salary payable by the Government to an Indian Citizen
* Dividend paid by a company
* Interest payable outside India
* Fee for technical services payable outside India
* Royalty payable outside India, etc.
Income not liable to tax: As a discussion was going on a little earlier, about certain section of income being expressly declared to be exempted under the Income Tax Act. These forms of income are as agricultural income, sum received by a member from HUF, share of profit of a partner from a firm, interest on securities or bonds held by a non-resident account, interest on savings certificate of non-resident Indian citizen, remuneration to consultants, death cum retirement gratuity received by an employee, leave encashment, compensation on retrenchment, etc.
Heads of income: Assessee’s total income is generated by adding all the heads of income together and then computing the same by allowing for exemptions and deductions as prescribed by the Act. The heads of income has five distinct categories which focus upon various, major modes of income by the assessee, namely, income from house property, income under the head salaries, income from capital gains, income from business or profession and income from other sources. Once all these five heads have been computed, deductions are allowed to get to the total tax liability of an assessee.
Total or taxable income: Total or taxable income is the income on which taxability of a person is determined. The total or taxable income is a result of computation of merging all the taxable income under various income heads and setting for provisions of exemptions and deductions. The resultant figure after making all the adjustments is regarded as the taxable income. The taxability of income is laid according to the category and rate in which such income falls and an addition of 2% and 1% is to made on the taxable amount for the purpose of education cess and secondary and higher education cess.
Agricultural Income: The most common form of exempted income in India is in form of Agricultural income. Agriculture income is referred to as the income generated by land or land’s use. Performance by a cultivator or receiver of rent in kind of any process ordinarily employed by a cultivator or receiver of rent in kind to render the producer raised or received by him fit to be taken to market shall also be considered as agricultural income.
Self assessment tax: Self assessment tax is a situation where the assessee pays tax to the Government according to the income computed by him. Since, India is a country having large population therefore, it is not possible for the authorities to compute the tax liability of every assessee, therefore, it has been concluded that the assessee’s needs to compute their liability on self assessment basis. Hence, the system of self assessment basis prevails in the taxation system.
Income Tax return: Income tax paid to the government is in form of return, therefore, it is known as the income tax return. Income tax return needs to be filed to the Authorities within the prescribed time as kept by the authorities. But with growing technology and advancement of facilities, e-filing is also allowed as over the internet. E-filing is compulsory in cases where the payable tax is greater than or equal to Rs. 10, 00, 000 as in case of professionals.
Other provisions: There are also certain miscellaneous provisions with to respect to income tax in form of mode of repayment of certain loans or deposits, service of notice generally, service of notice of a discontinued business, etc. All these modes though, do not affect the assessee directly, but some way or the other, it does affects the income of the assessee and hence have been covered under the Income Tax Act.
There is numerous part of the Act which requires separate attention and understandings, therefore, various other sections have also been framed in order to provide a better presentation of thoughts and ideas without creating too much confusion and doubt in minds of common people. The object is to express things in a simple way rather than making it complicated.
Assessment year: This is perhaps the most common area of mistake where mistake is done. Assessment year refers to the period of 12 months commencing from the first day of April every year. It is therefore, the period from 1st of April to 31st of March. Things can be put in a clear cut way, with the help of an example. Let take the present year 2011. In this case, from 1st April 2011, the assessment year 2011-12 will begin and the last date of this year shall be 31st March 2012. Tax is levied in each of the assessment year, with respect to or on the total income earned by the assessee in the previous year.
Previous year: The Indian Income Tax Act states that the an assessee is liable to pay taxes in respect of the income which has been earned in the previous year and hence, the concept on previous year comes into existence. Previous year is regarded as the year preceding the assessment year. For instance, if the current assessment year is 2011-12, then in such case, the previous year shall be 2010-11; therefore, the assessee shall be liable to pay taxes on the income earned during the assessment year 2010-11.
Residential status: The foremost need in determining the residential status of an assessee is to fulfill two basic obligations which are as follows:
* The assessee is in India for 60 days or more during the relevant previous year and has been in India for 365 days or more during four previous years immediately preceding the relevant previous year, or,
* The assessee is in India for a period or periods amounting in all to 182 days or more in the relevant previous year.
Perhaps these are the two basic criteria for an assessee to have a status of a resident in India.
Income liable to Tax: To be definite, one can say that every income which is earned by the assessee apart from certain incomes which have specifically been declared as exempted by the Act forms a part of income which is liable to tax. In such a scenario, all income forms a part of taxable income. There are certain general incomes which are liable to tax and they are in form of:
* Incomes received or deemed to be received in India
* Incomes which accrue or arise in India or deemed to accrue or arise in India
* Incomes from a business connection in India
* Income from any property, asset or source of income situated in India
* Income from transfer of any capital asset situated in India
* Any income which falls under the head ’Salaries’ if it is earned in India
* Salary payable by the Government to an Indian Citizen
* Dividend paid by a company
* Interest payable outside India
* Fee for technical services payable outside India
* Royalty payable outside India, etc.
Income not liable to tax: As a discussion was going on a little earlier, about certain section of income being expressly declared to be exempted under the Income Tax Act. These forms of income are as agricultural income, sum received by a member from HUF, share of profit of a partner from a firm, interest on securities or bonds held by a non-resident account, interest on savings certificate of non-resident Indian citizen, remuneration to consultants, death cum retirement gratuity received by an employee, leave encashment, compensation on retrenchment, etc.
Heads of income: Assessee’s total income is generated by adding all the heads of income together and then computing the same by allowing for exemptions and deductions as prescribed by the Act. The heads of income has five distinct categories which focus upon various, major modes of income by the assessee, namely, income from house property, income under the head salaries, income from capital gains, income from business or profession and income from other sources. Once all these five heads have been computed, deductions are allowed to get to the total tax liability of an assessee.
Total or taxable income: Total or taxable income is the income on which taxability of a person is determined. The total or taxable income is a result of computation of merging all the taxable income under various income heads and setting for provisions of exemptions and deductions. The resultant figure after making all the adjustments is regarded as the taxable income. The taxability of income is laid according to the category and rate in which such income falls and an addition of 2% and 1% is to made on the taxable amount for the purpose of education cess and secondary and higher education cess.
Agricultural Income: The most common form of exempted income in India is in form of Agricultural income. Agriculture income is referred to as the income generated by land or land’s use. Performance by a cultivator or receiver of rent in kind of any process ordinarily employed by a cultivator or receiver of rent in kind to render the producer raised or received by him fit to be taken to market shall also be considered as agricultural income.
Self assessment tax: Self assessment tax is a situation where the assessee pays tax to the Government according to the income computed by him. Since, India is a country having large population therefore, it is not possible for the authorities to compute the tax liability of every assessee, therefore, it has been concluded that the assessee’s needs to compute their liability on self assessment basis. Hence, the system of self assessment basis prevails in the taxation system.
Income Tax return: Income tax paid to the government is in form of return, therefore, it is known as the income tax return. Income tax return needs to be filed to the Authorities within the prescribed time as kept by the authorities. But with growing technology and advancement of facilities, e-filing is also allowed as over the internet. E-filing is compulsory in cases where the payable tax is greater than or equal to Rs. 10, 00, 000 as in case of professionals.
Other provisions: There are also certain miscellaneous provisions with to respect to income tax in form of mode of repayment of certain loans or deposits, service of notice generally, service of notice of a discontinued business, etc. All these modes though, do not affect the assessee directly, but some way or the other, it does affects the income of the assessee and hence have been covered under the Income Tax Act.
There is numerous part of the Act which requires separate attention and understandings, therefore, various other sections have also been framed in order to provide a better presentation of thoughts and ideas without creating too much confusion and doubt in minds of common people. The object is to express things in a simple way rather than making it complicated.
