Taxation
Dr. Haribansh Singh
Basic Concepts
ASSESSMENT YEAR (Section 2(9))
• Before one can embark on a study of the law of
income-tax, it is absolutely vital to understand some
of the expressions found under the Income-tax Act,
1961.
• “Assessment year” means the period starting from
April 1 and ending on March 31 of the next year.
Example- Assessment year 2019-20 which will
commence on April 1, 2019, will end on March 31,
2020.
• Income of previous year of an assessee is taxed during
the next following assessment year at the rates
prescribed by the relevant Finance Act.
PREVIOUS YEAR (Section 3)
• Income earned in a year is taxable in the next year. The
year in which income is earned is known as previous year
and the next year in which income is taxable is known as
assessment year.
• In other words, previous year is the financial year
immediately preceding the assessment year. Illustration -
For the assessment year 2019-20, the immediately
preceding financial year (i.e., 2018-19) is the previous year.
Exception-Newly set-up business/profession
• Income earned by an individual during the previous year
2018-19 is taxable in the immediately following assessment
year 2019-20 at the rates applicable for the assessment
year 2019-20.
Exception to the Rule-
• WHEN INCOME OF PREVIOUS YEAR IS NOT TAXABLE IN THE
IMMEDIATELY FOLLOWING ASSESSMENT YEAR
• The rule that the income of the previous year is taxable as the
income of the immediately following assessment year has certain
exceptions. These are:
• a. Income of non-residents from shipping business (section 172);
• b. Income of persons leaving India either permanently or for a
long period of time (section 174);
• c. Income of bodies formed for short duration (section 174A);
• d. Income of a person trying to alienate his assets with a view to
avoiding payment of tax(section 175); and
• e. Income of a discontinued business (section 176).
• In these cases, income of a previous year may be taxed as
the income of the assessment year immediately preceding
the normal assessment year. These exceptions have been
incorporated in order to ensure smooth collection of
income tax from the aforesaid taxpayers who may not be
traceable if tax assessment procedure is postponed till the
commencement of the normal assessment.
• Note: In the first four exceptions, it is mandatory on the
part of the Assessing Officer but in case of discontinued
business, it is at the discretion of the Assessing Officer.
• A financial year plays a double role—it is a previous year
as well as an assessment year.
PERSON (Section 2(31) )
• The term “person” includes:
• a. an individual;
• b. a Hindu undivided family;
• c. a company;
• d. a firm;
• e. an association of persons or a body of individuals, whether
incorporated or not;
• f. a local authority; and
• g. every artificial juridical person not falling within any of the preceding
categories.
• These are seven categories of persons chargeable to tax under the Act.
The aforesaid definition is inclusive and not exhaustive. Therefore, any
person, not falling in the above-mentioned seven categories, may still fall
in the four corners of the term “person” and accordingly may be liable to
tax.
ASSESSEE (Section 2(7))
• “Assessee” means a person by whom income tax or any other
sum of money is payable under the Act.
• It includes every person in respect of whom any proceeding under
the Act has been taken for the assessment of his income or loss or
the amount of refund due to him.
• It also includes a person
• who is assessable in respect of income or loss of another person
or
• who is deemed to be
• an assessee, or
• an assessee in default under any provision of the Act.
• So, there are four Types of Assessees-1.Normal Assessee, 2.
Representative Assessee, 3. Deemed Assessee and 4. Assesse-in-
default
HOW TO CHARGE TAX ON INCOME
• To know the procedure for charging tax on income, one should be
familiar with the following:
• Annual tax - Income-tax is an annual tax on income.
• Tax rate of assessment year - Income of previous year is
chargeable to tax in the next following assessment year at the tax
rates applicable for the assessment year. This rule is, however,
subject to some exceptions.
• Rates fixed by Finance Act - Tax rates are fixed by the annual
Finance Act and not by the Income-tax Act. For instance, the
Finance Act, 2019, fixes tax rates for the assessment year 2019-20.
• Tax on person - Tax is charged on every person.
• Tax on total income - Tax is levied on the “total income” of every
assessee computed in accordance with the provisions of the Act.
GROSS TOTAL INCOME
• As per section 14, the income of a person is computed under the
following five heads:
• 1. Salaries.
• 2. Income from house property.
• 3. Profits and gains of business or profession.
• 4. Capital gains.
• 5. Income from other sources.
• The aggregate income under these heads is termed as “gross total
income”. In other words, gross total income means total income
computed in accordance with the provisions of the Act before
making any deduction under sections 80C to 80U.
• The taxable income or total income is computed after making
deduction under sections 80C to 80U from the gross total income.
Budget
• Financial year: Period of 12 months beginning
on April 1 every year and ending on
immediately following March 31.
• Finance Act: The finance bill is commonly
referred to as budget and is presented
generally on the last day of February every
year. The finance bill when signed by the
President becomes the Finance Act.
