Gross Total Income | Income Tax Laws - B Com PDF Download

 Page 1


BASIC CONCEPTS OF INCOME TAX 
Learning Objectives 
Meaning of Assessment Year 
Meaning of Previous Year 
When Income of Previous Year is not Taxable in the Immediately 
Following Assessment Year 
A Financial Year has a Double Role to Play-It is a Previous Year 
as Well as an Assessment Year 
Person 
Assessee 
How to Charge Tax on Income 
Meaning of Income 
' Gross Total Income 
 Income Tax Rates 
• Summary 
• Review Questions 
• Further Readings 
LEARNING OBJECTIVES 
After going through this lesson you should be able to understand: 
• discuss the meaning of Assessment year. 
• define the meaning of Previous year. 
• describe the word Assessee. 
• understand, hold to charge tax on income. 
• elucidate the meaning of income. 
• define the meaning of gross total income. 
MEANING OF ASSESSMENT YEAR 
"Assessment year" means the period starting from Aprif 1 and ending on 
1\.farch 31 of the next year. 
e 
I 
Page 2


BASIC CONCEPTS OF INCOME TAX 
Learning Objectives 
Meaning of Assessment Year 
Meaning of Previous Year 
When Income of Previous Year is not Taxable in the Immediately 
Following Assessment Year 
A Financial Year has a Double Role to Play-It is a Previous Year 
as Well as an Assessment Year 
Person 
Assessee 
How to Charge Tax on Income 
Meaning of Income 
' Gross Total Income 
 Income Tax Rates 
• Summary 
• Review Questions 
• Further Readings 
LEARNING OBJECTIVES 
After going through this lesson you should be able to understand: 
• discuss the meaning of Assessment year. 
• define the meaning of Previous year. 
• describe the word Assessee. 
• understand, hold to charge tax on income. 
• elucidate the meaning of income. 
• define the meaning of gross total income. 
MEANING OF ASSESSMENT YEAR 
"Assessment year" means the period starting from Aprif 1 and ending on 
1\.farch 31 of the next year. 
e 
I 
Example-Assessment year 2009-10 which will commence on April 1, 
2009, will end on March 31, 2010. 
Income of previous year of an assessee is taxed during the next following 
assessment year at the rates prescribed by the relevant Finance Act. 
MEANING OF PREVIOUS YEAR 
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 preceeding the assessment year. 
Illustration 1.1: For the assessment year 2009-10, the immediately 
preceding financial year {i.e., 2008-09) is the previous year. 
Income earned by an individual during the previous year 2008-09 is 
taxable in the immediately following assessment year 2009-10 at the rates 
applicable for the assessment year 2009-10. 
Similarly, income earned during the previous year 2009-10 by a company 
will be taxable in the assessment year 2010-11 at the rates applicable for 
the assessment year 2010-11. 
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; 
(b) Income of persons leaving India either permanently or for a long 
period of time; 
(c) Income of bodies formed for short duration; 
(d) Income of a person trying to alienate his assets with a view to 
avoiding payment of tax; and 
(e) Income of a discontinued business. 
In these cases, income of a previous year may be taxed as the income 
of the assessment year immediately proceeding 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 he> 
traceable if tax assessment procedure is postponed till the commencement 
of the normal assessment. 
A FINANCIAL YEAR HAS A DOUBLE ROLE TO 
PLAY-IT IS A PREVIOUS YEAR AS WELL AS 
AN ASSESSMENT YEAR 
On the basis of the aforesaid discussion, it can be said that a financial year 
plays a double role-it is a previous year as well as an assessment year. 
Page 3


BASIC CONCEPTS OF INCOME TAX 
Learning Objectives 
Meaning of Assessment Year 
Meaning of Previous Year 
When Income of Previous Year is not Taxable in the Immediately 
Following Assessment Year 
A Financial Year has a Double Role to Play-It is a Previous Year 
as Well as an Assessment Year 
Person 
Assessee 
How to Charge Tax on Income 
Meaning of Income 
' Gross Total Income 
 Income Tax Rates 
• Summary 
• Review Questions 
• Further Readings 
LEARNING OBJECTIVES 
After going through this lesson you should be able to understand: 
• discuss the meaning of Assessment year. 
• define the meaning of Previous year. 
• describe the word Assessee. 
• understand, hold to charge tax on income. 
• elucidate the meaning of income. 
• define the meaning of gross total income. 
MEANING OF ASSESSMENT YEAR 
"Assessment year" means the period starting from Aprif 1 and ending on 
1\.farch 31 of the next year. 
e 
I 
Example-Assessment year 2009-10 which will commence on April 1, 
2009, will end on March 31, 2010. 
Income of previous year of an assessee is taxed during the next following 
assessment year at the rates prescribed by the relevant Finance Act. 
MEANING OF PREVIOUS YEAR 
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 preceeding the assessment year. 
Illustration 1.1: For the assessment year 2009-10, the immediately 
preceding financial year {i.e., 2008-09) is the previous year. 
Income earned by an individual during the previous year 2008-09 is 
taxable in the immediately following assessment year 2009-10 at the rates 
applicable for the assessment year 2009-10. 
Similarly, income earned during the previous year 2009-10 by a company 
will be taxable in the assessment year 2010-11 at the rates applicable for 
the assessment year 2010-11. 
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; 
(b) Income of persons leaving India either permanently or for a long 
period of time; 
(c) Income of bodies formed for short duration; 
(d) Income of a person trying to alienate his assets with a view to 
avoiding payment of tax; and 
(e) Income of a discontinued business. 
In these cases, income of a previous year may be taxed as the income 
of the assessment year immediately proceeding 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 he> 
traceable if tax assessment procedure is postponed till the commencement 
of the normal assessment. 
A FINANCIAL YEAR HAS A DOUBLE ROLE TO 
PLAY-IT IS A PREVIOUS YEAR AS WELL AS 
AN ASSESSMENT YEAR 
On the basis of the aforesaid discussion, it can be said that a financial year 
plays a double role-it is a previous year as well as an assessment year. 
PERSON 
The term "person" mcludes: 
(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; 
({) 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 
"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. 
HOW TO CHARGE TAX ON INCOME 
To know the procedure for charging tax on income, one should be familiar 
with the following: 
1. Annual tax-Income-tax is an annual tax on income. 
2. 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. 
3. 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, 
2006, fixes tax rates for the assessment year 2006-07. 
4. Tax on person-Tax is charged on every person. 
5. Tax on total income-Tax is levied on the "total income" of every 
assessee computed in accordance with the provisions of the Act. 
MEANING OF INCOME 
The definition of the term "income" in Section 2(24) is inclusive and not 
exhaustive. Therefore, the term "income" not only includes those things 
that are included in Section 2(24) but also includes those things that the 
term signifies according to its general and natural meaning. 
 
 
Page 4


BASIC CONCEPTS OF INCOME TAX 
Learning Objectives 
Meaning of Assessment Year 
Meaning of Previous Year 
When Income of Previous Year is not Taxable in the Immediately 
Following Assessment Year 
A Financial Year has a Double Role to Play-It is a Previous Year 
as Well as an Assessment Year 
Person 
Assessee 
How to Charge Tax on Income 
Meaning of Income 
' Gross Total Income 
 Income Tax Rates 
• Summary 
• Review Questions 
• Further Readings 
LEARNING OBJECTIVES 
After going through this lesson you should be able to understand: 
• discuss the meaning of Assessment year. 
• define the meaning of Previous year. 
• describe the word Assessee. 
• understand, hold to charge tax on income. 
• elucidate the meaning of income. 
• define the meaning of gross total income. 
MEANING OF ASSESSMENT YEAR 
"Assessment year" means the period starting from Aprif 1 and ending on 
1\.farch 31 of the next year. 
e 
I 
Example-Assessment year 2009-10 which will commence on April 1, 
2009, will end on March 31, 2010. 
Income of previous year of an assessee is taxed during the next following 
assessment year at the rates prescribed by the relevant Finance Act. 
MEANING OF PREVIOUS YEAR 
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 preceeding the assessment year. 
Illustration 1.1: For the assessment year 2009-10, the immediately 
preceding financial year {i.e., 2008-09) is the previous year. 
Income earned by an individual during the previous year 2008-09 is 
taxable in the immediately following assessment year 2009-10 at the rates 
applicable for the assessment year 2009-10. 
Similarly, income earned during the previous year 2009-10 by a company 
will be taxable in the assessment year 2010-11 at the rates applicable for 
the assessment year 2010-11. 
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; 
(b) Income of persons leaving India either permanently or for a long 
period of time; 
(c) Income of bodies formed for short duration; 
(d) Income of a person trying to alienate his assets with a view to 
avoiding payment of tax; and 
(e) Income of a discontinued business. 
In these cases, income of a previous year may be taxed as the income 
of the assessment year immediately proceeding 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 he> 
traceable if tax assessment procedure is postponed till the commencement 
of the normal assessment. 
A FINANCIAL YEAR HAS A DOUBLE ROLE TO 
PLAY-IT IS A PREVIOUS YEAR AS WELL AS 
AN ASSESSMENT YEAR 
On the basis of the aforesaid discussion, it can be said that a financial year 
plays a double role-it is a previous year as well as an assessment year. 
PERSON 
The term "person" mcludes: 
(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; 
({) 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 
"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. 
HOW TO CHARGE TAX ON INCOME 
To know the procedure for charging tax on income, one should be familiar 
with the following: 
1. Annual tax-Income-tax is an annual tax on income. 
2. 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. 
3. 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, 
2006, fixes tax rates for the assessment year 2006-07. 
4. Tax on person-Tax is charged on every person. 
5. Tax on total income-Tax is levied on the "total income" of every 
assessee computed in accordance with the provisions of the Act. 
MEANING OF INCOME 
The definition of the term "income" in Section 2(24) is inclusive and not 
exhaustive. Therefore, the term "income" not only includes those things 
that are included in Section 2(24) but also includes those things that the 
term signifies according to its general and natural meaning. 
 
 
. 
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 SOC to SOU. 
INCOME TAX RATES 
ASSESSMENT YEAR 2009-2010 and 2010-2011 
/ndiuiduall Huf 
Up to 1,50,000 
1,50,000 to 3,00,000 
3,00,000 to 5,00,000 
Above 5,00,000 
Resident Women 
< 65 Years 
Up to 1,80,000 
1,80,000 to 3,00,000 
3,00,000 to 5,00,000 
Above 5,00,000 
Senior Citizen 
of 65 Years 
or More 
Up to 2,25,000 
2,25,000 to 3,00,000 
3,00,000 to 5,00,000 
Above 5,00,000 
FIRM­
COMPANY­
ADVANCE TAX 
Rate A.Y. Individual/ Huf 
2009-2010 
Nil Up to 1,60,000 
10% 1,60,000 to 3,00,000 
20% + 15000 3,00,000 to 5,00,000 
30% + 55000 Above 5,00,000 
Rate A.Y. Resident Women 
2009-2010 < 65 Years 
Nil Up to 1,90,000 
10% 1,90,000 to 3,00,000 
20% + 12000 3,00,000 to 5,00,000 
30% + 52000 Above 5,00,000 
Rate A.Y. Senior Citizen of 
2009-2010 65 Years or More 
Nil Up to 2,40,000 
10% 2,40,000 to 3,00,000 
20% + 7500 3,00,000 to 5,00,000 
30% + 47500 Above 5,00,000 
30% of Total Income. 
30% of Total Income. 
Rate A.Y. 
2010-2011 
Nil 
10% 
20% + 14000 
30% + 54000 
Rate A.Y. 
2010-2011 
Nil 
10% 
20% + 11000 
30% + 51000 
Rate A.Y. 
2010-2011 
Nil 
10% 
20% + 6000 
30% + 46000 
Advance tax Limit increased from~ 5,000 to~ 10,000 from financial 
year 2009-10 onwards. 
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