Basics of Income Tax

Administration of income tax

  • Ministry of Finance
  • Department of Revenue
  • CBDT
  • Assessing Officers
  • Commissioners

Charging Section – Section 4

Section 4 of the Income-tax Act is the charging section which states that:

  • The tax shall be charged at the rates prescribed, for the year, by the annual Finance Act.
  • The charge is on every person specified under the relevant section;
  • Tax is charged on the total income earned during the previous year 

Previous year -section 3

For this, the “previous year” means the financial year immediately preceding the assessment year.

In the case of

  • a business or profession newly set up, then the previous year shall be the period:
    • starting from the date of setting up of the business or profession
    • and closing on the last day of the financial year i.e. 31st March.
  • or a source of income newly coming into existence the previous year shall be the period
    • starting with the date on which the source of income newly comes into existence
    • and closing on the last day of the financial year.

Assessment year – Section 2(9)

  • The term has been defined under section 2(9)
  • This means 12 months commencing on 1st April every year.
  • This year in which assessment is done is called the assessment year while the year in respect of the income of

which assessment is done is called the previous year.

Person section 2(31)

The term ‘person’ is important from another point of view also viz., the charge of income-tax is on every ‘person’.

The definition is inclusive i.e. a person includes,

  • An individual,
  • A Hindu Undivided Family (HUF)
  • A company,
  • A firm,
  • An AOP or a BOI, whether incorporated or not,
  • A local authority, and
  • Every artificial juridical person e.g., an idol or deity.

Assessee section 2(7)

  • Assessee means a person by whom any tax or any other sum of money is payable. It includes every person in respect of whom any proceeding has been taken for the assessment of his income. Sometimes, a person becomes accessible in respect of the income of some other person. In such a case also, he may be considered as an assessee.
  • The assessee in Default. -also includes every person who is deemed to be an assessee or the assessee in default under any provision of this Act.

Overview of income tax

  • Residential Status
  • Classification of Income
  • Computation of Income under each head
  • Clubbing
  • Set-off or carry forward and set-off of losses
  • Computation of Gross Total Income
  • Deductions from Gross Total Income
  • Total Income
  • Computation of Income Tax
  • Surcharge / Rebate ETC.
  • Health and Education Cess (May 2019)
  • Advance tax/TDS etc
  • Tax Payable / Tax refundable
  • Return of Income
  • Assessment

Computation of Tax

Following concepts are relevant

  • Rate of Tax
  • Rebate
  • Surcharge
  • Marginal Relief
  • Health & Education cess
  • Advance tax paid
  • TDS
  • Self-assessment tax
  • 288A – Rounding off of Total Income
  • 288B – Rounding off of tax etc.

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