BASIC CONCEPTS OF INCOME TAX

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.

ASSESSMENT YEAR SEC 2(9)

Assessment year means the period of 12 months commencing on the first day of April every year and ending on 31st march of the next year. The current assessment year is 2007 -008(1.4.2007 to 31.03.2008).
An Assessee is liable to pay tax on the income of the previous year during the next following assessment year. Eg: - during the Assessment year 2007-08 income earned during 2006-07 is taxed.

PREVIOUS YEAR SEC 3

Previous year means the financial year immediately preceding the assessment year. The previous year relevant to the Assessment year 2007-08 is 2006-07(1.4.06 to 31.03.07).ie the year in which income is earned is known as previous year.


PERSONS SEC 2(34)

1. Individual
2. Hindu undivided family
3. Company
4. Firm
5. Association of persons or body of individual
6. Local authority
7. Artificial juridical person

ASSESSEE SEC 2(7)

Assessee is a person, who has liability to pay tax or any other sum of money under Income Tax act of 1961, so the afore said persons include in the category of Assessee. Every Assessee 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.

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,

1. Income from non resident shipping company
2. Income of person leaving India
3. Income of person likely to transfer assets to avoid tax
4. Income from discontinued business.

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

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

RESIDENTIAL 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’
*Resident
*Non resident
*Not ordinary resident

There is basic and additional condition for determining the residential status of different assessee.

Basic condition

1. If he has been India in that previous year for a period or periods amounting in all to 182 days or more
2.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.

Additional conditions

1.An individual who has been in India at least 2 out of 10 previous years preceding the relevant previous year.
2.The individual has been India for at least 730 days in all during the 7 previous year preceding the relevant previous year.

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.

RATE OF INCOME TAX PAYABLE (ASSESSMENT YEAR 2008-09)

*Normal rate of tax

Up to Rs.1, 10,000 nil
Next RS 40,000 10%
Next Rs 1, 00,000 20%
Above Rs.2, 50,000 30%

*For a woman below 65 years of age

Up to Rs.1, 45,000 nil
Next Rs.5000 10%
Next Rs.1, 00,000 20%
Above Rs.2, 50,000 30%

*Senior citizens at the age of 65 year or more

Up to Rs.1,95,000 nil
Next Rs.55, 000 20%
Next Rs.2, 50,000 30%

*Surcharge- In the case of individual and HUF, there is no surcharge if income is less than 10 lakhs. If it exceeds 10 lakhs then surcharge is 10%. But, the surcharge is 2.5% in the case of company, firm. Local authorities etc.
*Educational Cess: - 3% on amount payable as Tax.