some very basic terms of tax

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Some very basic terms & their definitions used in context with the Indian Income Tax are given

below:

ASSESSEEis any person who is required to pay Income tax or any other sum payable under

the Income Tax Act being interest, penalty etc.

ASSESSMENT YEARis the period comprising of twelve months starting on 1st of April &

ending on 31st March of the next year. Assessment year succeeds the financial year. For example

For the FY 2011-2012, the AY will be 2012-2013.

PREVIOUS YEARis the financial year preceding the assessment year.

PERSONS LIABLE TO PAY INCOME TAXare the persons liable to pay income tax if there

income levels exceed the minimum sum that is exempt from tax:

Individuals (including non-residents)

Hindu Undivided Familiesconsists of all persons lineally descended from a common ancestor

including their wives & unmarried daughters. An HUF is a creation of law. It is a separate entity

than can own or sell property, enter contracts or earn income.

Association of Personsis an arrangement where two or more persons have voluntarily joined

together for a common purpose with the object of producing income, profits & gains.

Body of Individualsconglomerate of persons who have come together not voluntarily, but

carry on some activity to earn income.

Artificial Juridical persons

Societies & Trusts

Following are required to pay income tax irrespective of their income levels:

Partnership FirmsIt is an arrangement, where people have agreed to share profits of a business,

carried on by all or any of them acting for all.

Co-operative Societiesis a group of individuals who have come together for their mutual

benefit.

Companiescan be Indian/ domestic (publicin which public have a substantial interest or

privatewhere public do not have a substantial interest) or a foreign company.

Local Authoritiesinclude Panchayats, Local Municipality.


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Person: The word person includes the following seven,

An Individual Hindu Undivided Family

Company

Firm Association of persons, for e.g. Co-operative Housing Society. Local Authority Any other artificial juridical person not falling in the above categories

Previous Year: The year in which a person earns his income is called Previous year. The period is

from 1st April to 31st March.

Assessment Year: The year, in which a person is assessed to tax or in simple words, a person is taxedfor the income earned in previous year as explained above.

Income: Income can be in cash or kind. It is also categorized into two viz. taxable and exempt.

According to the act, the word income also includes loss, thank god! So any loss incurred can be set

off against income and eventually minimizes the tax liability.

Take a look at the following tax slabs for the two assessment years

Male

For 2010-2011 For 2011-2012

Income Rate

below 1.6 lacs 0% below 1.6 lacs 0%

1.6 lacs to 3 lacs 10% 1.6 lacs to 5 lacs 10%

3 lacs to 5 lacs 20% 5 lacs to 8 lacs 20%

Above 5 lacs 30% Above 8 lacs 30%

Female

For 2010-2011 For 2011-2012

Income Rate





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Senior Citizens(if age is 65 years or above)

For 2010-2011 For 2011-2012

Income Rate





The amount of lower limit is not to be included while calculating tax, whereas amount exceeding the

limit is taxed with the given rates.

INCOMErefers to earning by the deployment of asset or by rendering any service. Revenuereceipts come under this category, which keep accruing from time to time. The term incomes are

of great significance with respect to income tax. For the liability of tax is computed on this

Income. There are five broad heads under which income has been classified.

Heads of Income:

Income from Salaryincludes income from wages, annuity, pension, gratuity, fee, commission,

advance salary etc. For income under the head salary, the existence of employer-employee

relationship is a must. It is chargeable on due or paid basis, whichever is earlier.

Income from House Propertyhouse property is any building or land appurtenant thereto

(courtyard/ compound), of which the person is the owner.

Profits& Gains of Business / Professionthe term Business includes any trade, commerce or

manufacture. Profession means any vocation, occupation requiring intellectual or manual skill.

Income from Capital Gainsis any profit or gain arising from the transfer of capital assets

during the previous year.

Income from Other SourcesThis is the residues head of income. Income that does not fall

under any of the above heads of income, are taxed under this head.

CAPITAL RECEIPTSAre different from revenue receipts. Capital receipts are generally

exempt from tax unless expressly stated.

CLUBBING OF INCOMEwould in simple words, mean summing up of the Income prone

person with the income of another person. The most common cases the clubbing of minor childs

income with that of his either parent.


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DEDUCTIONSafter calculating the total income from the various heads of income, certain

amount is deducted towards expenditure incurred to earn that income example life insurance

premium paid, investment in tax saving schemes & mutual funds. These deductions help in

saving a certain amount of tax. They are also called the 80 series deductions as they are

contained in sections 80A to 80U.

SET OFF & CARRY FORWARDSet off is the adjustment of certain losses against income

from the various sources of income.

Carry forward is the carrying forward of certain losses to be adjusted (set off) in subsequent

years.

GROSS TOTAL INCOMEis the sum of all the earnings from the various heads of income,

after set off of any loss that was carried forward from the past years.

TAXABLE INCOME /NET INCOMEis the gross total income less the deductions. It is on

this sum that the tax liability is calculated.

PERMANENT ACCOUNT NUMBERis a unique ten digit alpha-numeric number, on the

basis of which the Income tax department identifies the assesse.

INCOME TAX RETURNafter the assesse has calculated his tax liability (self-assessment) he

is required to file his return of income in the prescribed time & manner. Due dates of filing

returns are:

Companies 30th September

Assesses whose accounts are required to be audited under IT Act30th September

A working partner of the firm, whose accounts are required to be audited30th September

All other assesses31st July.

some very basic terms of tax

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