Important Concepts in Taxation

This post is meant to learn various concepts relating to Taxation like Definition of Person, Assessment Year, Previous Year, etc. So must read till end.

Person:

Person includes:

  • An Individual
  • A Hindu Undivided Family(HUF)
  • A Company
  • A Firm
  • An Association of Persons(AOP) or a Body of Individuals(BOI), whether incorporated or not
  • A Local Authority
  • Artificial Judicial Person

Assessment Year[Section 2(9)]:

Assessment year means the period of 12 months commencing on the first day of April every year. The tax is levied in each assessment year, with respect to or on the total income earned by the assessee in the previous year.

Previous Year[Section 3]:

Previous year means the financial year immediately preceding the assessment year. Financial year means a year which starts on 1st April and ends on 31st March.

*Cases where Income of Previous year is assessed in the same year:

There are several circumstances where the income is taxed in the same year in which it is earned. These exemptions have been provided to safeguard the collection of taxes so that assessee, who may not be traceable later on, are not allowed to escape the payment of the taxes. So the cases are as follows:

  • Shipping business of Non-resident
  • Assessment of Persons leaving India
  • Assessment of association of persons or body of individuals or artificial judicial person formed for a particular event or purpose.
  • Assessment of persons likely to transfer property to avoid tax
  • Discontinued business.

Assessee[Section 2(7)]:

Assessee means a person by whom any tax is to be payable. This would include the following:

  1. Every person in respect of whom any proceedings has been taken for assessment of his income or to determine the loss sustained by him or to determine the amount of refund due to him.
  2. A person who is deemed to be an assessee under any provisions of act. This would include the legal representative of a deceased person or guardian of minor.
  3. Every person who is deemed to be an assessee in default if he fails to comply with duties imposed upon him under Act. For Example: a person is responsible for deducting tax at source(TDS) and deposit it to government as well. If he does not deduct or deposit it with Government, he shall be an assessee in default.

Charge of Income[Section 4]:

No tax can be levied or collected in India except under the authority of law. The base of levy of tax in any assessment year is normally the income of the previous year. The income tax can also be charged in previous year as tax deducted at source or paid in advance.

Income:

Income includes the following:

  • Profits and gains
  • Dividend
  • Voluntary contributions received by the trust or an institution or an association created wholly or partly for charitable or religious purposes or by any university or educational institution or by any hospital or other institution referred to in act or by an electoral Trust.
  • The value of perquisite or profit in lieu of salary taxable under clauses (2) & (3) of section 17
  • Any special allowance or benefit granted to assessee to meet expenses wholly for the performance of the duties of office or employment of profit.
  • The value of any benefits or perquisite, whether convertible into money or not, obtained from a company either by director or by a person who has substantial interest in the company by relative of director or such person.
  • The value of any benefit or perquisite, whether convertible into money or not, obtained from a representative assessee mentioned in Section 160(1)(iv)(iii) or by any person on whom behalf or for whose benefit any income is receivable by the representative assessee.
  • Any sum chargeable under, clauses (ii), (iii), (iiia), (iiib), (iiic) (iv), (v) of section 28.
  • Any capital gain chargeable under section 45.
  • Profit or gain of any business carried on by a Mutual Insurance Company or by Co-operative Society or by bank
  • Winning of lotteries, crossword puzzles, horse races, card games or other games.
  • Any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund set up by the Employees State Insurance Act, 1948.
  • Any sum received under a Keyman Insurance policy,etc.