Taxation Exam > Taxation Notes > Fast Track Quick Revision Income Tax > Basic Concepts
Basic Concepts
| Concept of Income | ||||
| Revenue receipt | Every revenue receipt is derived from source of income. Source of income can be a tangible asset or intangible assets | Capital receipt | 1. | Receipt for which there do not exist a source of income is a capital receipt. |
| 2. | Sale of source of income. | |||
| Tax treatment | Every revenue receipt is taxable, unless otherwise expressly exempted under the Act. | Tax treatment | Every capital receipt is not taxable unless otherwise expressly taxable. | |
| Revenue expenditure | Expenditure incurred for maintenance of source of income. | Capital expenditure | Expenditure incurred for acquisition of source of income. | |
| Definitions | |||
| S 2(9) | Assessment Year | means the period of 12 months commencing on the 1st day of April every year. (AY = FY in which tax is paid) | |
| S 3 | Previous year | means the financial year immediately preceding the assessment year. (PY = FY in which income is earned) | |
| Exceptions to PY Income of the PY taxable in the PY itself instead of AY | S 172 | Income of a Non-Resident shipping companies. | |
| S 174 | Income of persons leaving India with no intention of returning to India. | ||
| S 174 A | Assessment of AOP / BOI / AJP formed for a particular purpose likely to be dissolved in the same year of formation. | ||
| S 175 | The assessee is likely to transfer his assets with a view to avoid payment of tax. | ||
| S 176 | Income of a discontinued business or profession. | ||
| S 2(31) | Person | includes Individual; HUF; Company; Firm; AOP (Society); Local Authority; AJP (University) | |
| S 2(7) | Assessee | Person who pays tax, interest or penalty, Any proceeding undertaken; a deemed assessee; a person who is in default. | |
| S 2(24) | Income | includes salary, rent, profit, dividend, gifts, donations, capital gain. | |
| Assessment year | Previous year |
| Assessment year is the financial year in which tax is paid. | Previous year is the financial year in which income is earned. |
| Assessment year succeeds previous year. | Previous year precedes assessment year. |
| Assessment year always starts from 1st of April and ends on 31st of March. | All previous year whether first or subsequent shall always end on 31st of March. However start of first previous year shall depend upon the existence of source of income. |
| The period of assessment year is fixed 12 months. | The period of previous year is of maximum of 12 months. It can exist even for a day if the source of income newly coming into existence, in the said financial year, i.e. on 31st March. |
The document Basic Concepts is a part of the Taxation Course Fast Track Quick Revision Income Tax.
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FAQs on Basic Concepts
| 1. What is taxation? |  |
Ans. Taxation refers to the process of levying and collecting taxes by the government from individuals, businesses, or other entities. It is a means by which the government generates revenue to fund public services, infrastructure, and various government expenditures.
| 2. What are the different types of taxes? | |
Ans. There are several types of taxes imposed by governments, including income tax, sales tax, property tax, excise tax, and corporate tax. Income tax is levied on individuals' earnings, while sales tax is charged on the purchase of goods and services. Property tax is based on the value of real estate, excise tax is imposed on specific goods like tobacco or fuel, and corporate tax is applied to the profits of businesses.
| 3. How does taxation impact the economy? | |
Ans. Taxation plays a significant role in the economy as it affects individuals, businesses, and overall economic growth. Tax policies can influence consumer behavior, business investment decisions, and economic productivity. Higher tax rates can reduce consumer spending and business investments, while lower tax rates can stimulate economic growth.
| 4. What is the difference between progressive and regressive taxation? | |
Ans. Progressive taxation is a system where the tax rate increases as the income of an individual or business increases. This means that higher income earners are taxed at a higher rate, aiming for a more equitable distribution of wealth. On the other hand, regressive taxation is a system where the tax rate decreases as the income increases. This type of taxation tends to place a higher burden on lower-income individuals or households.
| 5. How can individuals minimize their tax liability? | |
Ans. Individuals can minimize their tax liability through various strategies, such as taking advantage of tax deductions, credits, and exemptions. This can include deductions for mortgage interest, educational expenses, or contributions to retirement accounts. Additionally, individuals can consider tax planning strategies like maximizing tax-advantaged investments, deferring income, or utilizing tax-efficient savings accounts to reduce their overall tax burden. It is important to note that tax planning should be done in compliance with the tax laws and regulations in the respective jurisdiction.
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