Income-tax, in India, is a tax payable, annually, at the rate enacted by the Indian Union Budget (Finance Act) for every Assessment Year, on the Total Income earned in the Previous Year by every Person.
The chargeability is based on the nature of income, i.e., whether it is revenue or capital. The principle of taxation of income is: -
All revenue incomes are chargeable to tax unless it is specifically exempt (declared as not taxable)
All capital profits are not chargeable to tax unless specifically made chargeable.
The computation of the total income of any person depends on the Residential Status of such person.
The Residential Status of a person is of two categories, viz.,
However, in case of Individuals and Hindu Undivided Families (HUFs) the category Resident is divided into two, viz.,
Resident and Ordinarily Resident (also termed simply as 'Resident')
Resident but not Ordinarily Resident.
All Indian residents are taxable for all their income, including income outside India.
Non resident Indians are taxable only for income,
Received in India or
Income accrued in India.
Not Ordinarily residents of India are taxable in relation to income,
Received in India or
Income accrued in India or
Income from business or profession controlled from India.
Gross Total income is sum of Income under the following heads : -
Income from House Property
Total Income = Gross Total Income - Deduction Under Chapter VI-A
In computing the total income, the following related provisions should also be taken into consideration: -
Chapter III of the Indian Income-tax Act
Incomes, which do not form part of Total Income.
Chapter V of the Indian Income-tax Act
Income of other persons, included in the assessee's total income.
Chapter VI of the Indian Income-tax Act
Aggregation of Income and Set-off and Carry Forward of Losses.
Chapter VII of the Indian Income-tax Act
Incomes forming part of Total Income on which no income-tax is payable.
Besides, certain other special provisions relating to non-residents, companies, firms, liability in special cases, etc. needs to be taken into account in determining the total income.
Generally, the income of the previous year is chargeable to income-tax in the assessment year. However, in the following cases, the income of the previous year is charged in the previous year itself: -
Shipping Business of Non-Residents
Assessment of Persons leaving India
Assessment of Persons likely to transfer property to avoid tax
Assessment of AOP, BOI or Artificial Juridical Persons formed for a particular venture
Discontinued Business or Profession
Income-tax is payable at the rates prescribed by the Union Budget for every assessment year. Rebates and Reliefs are available under sections 88E, 89, 90 & 91 in certain cases.
The Income-tax shall be paid by the assessee by Advance Tax/Self-Assessment tax, as the case may be. For delay/non-payment of Income-tax (either Advance or Self Assessment) interest/penalty is levied. The Income-tax chargeable as above, shall be deducted at source (TDS), collected at source (TCS) or paid in advance (Advance Tax - if Tax Payable exceeds Rs.5,000/-).
In the case of certain entities like, Lorry Owners, Contractors, Retail Traders and certain Non-residents, tax is payable on presumptive income (notional income). Similarly, a Company is liable to pay Minimum Alternate Tax on notional income (book-profit).
All persons having losses or taxable income are required to file Return of Income. However, certain persons who do not have taxable income are also required to file return for better tax administration.
For better tax monitoring, certain category of assesses are now required to obtain Permanent Account Number (PAN). Obtaining PAN has been made mandatory for certain type of Transactions, like Property/Vehicle Sale/Purchase, FDs in Banks/Post Offices, Share transactions, etc.
Books of Account are required to be maintained by certain class of persons and Audit to be carried out in certain other cases.
Further, there are several other special provisions, penalty/prosecution provisions, powers of the income-tax authorities, restrictions on certain transactions, etc.