You are on page 1of 10

PROF CA S P DESAI IMPORTANT DEFINITIONS Section 2 of the Income-tax Act gives definitions of the various terms and

expressions used in the Act. Assessee [Section 2(7)] ‘Assessee’ means a person by whom any tax or any other sum of money is payable under this Act and includes. (a) (i) Every person in respect of whom any proceedings under this Act have been taken for the assessment of his income or of the income of any other person in respect of which he is assessable, or of the loss sustained by him or by such other person, or of the amount of refund due to him or such person. (ii) Every person in respect of whom any proceeding under the Act has been taken for assessment of Fringe benefits. (b) Every person who is deemed to be an assessee under any provision of this Act. (c) Every person who is deemed to be an assessee in default under any provision of this Act. Thus the above definition includes the following assessee: (a) Ordinary assessee – it includes (i) Any person against whom some proceedings under this Act are going on. (ii) Any person who has sustained loss and has filed return or loss u/s 139(3). (iii) Any person by whom some amount of interest, tax or penalty is payable under this Act, or (iv) Any person who is entitled to refund of tax under this Act. (b) Representative assessee or deemed assessee: A person may not only be liable for his own income or loss but also on the income or loss of other persons e.g.: guardian of minor or lunatic, agent of a non-resident etc. (c) Assessee-in default: A person is deemed to be an assesseein default if he fails to fulfill his obligations under the Act. E.g.
1

There are however.2005 and assessment year will be 2005-06.10. 2006.employer paying salary fails to deduct tax at source or deducts tax but does not deposit it in the treasury. April 1 to March 31) as previous year. the first previous year will be the period commencing from the date of setting up of business / profession or as the case may be. For instance.2004 and ending on 31. 2005-06 which will commence on April. From the assessment year 1989-90 onwards. The year in which income is earned is known as previous year. his previous year will be the period commencing on 10. all assesses are required to follow financial year (i.172] (b) Income of persons leaving India either permanently or for a long period [Sec. There is no separate definition of the work “assessment” in the Act except an inclusive definition under section 2(8) which says that “assessment “ includes reassessment. 2005 will end on March 31. Assessment year [Section 2(9)] “Assessment year” means the period of twelve months commencing on 1st April every year and ending on 31st March of the next year. assessment means computation of taxable income and levy of tax there on for a particular assessment year . This uniform previous year has to be followed for all sources of income. Previous Year [Section 3] Income earned in a year is taxable in the next year. A sets up a business on 10. In case of newly set up business or profession or a source of income newly coming into existence. Assessment [Section 2(8)] Under the Income-tax law. where Mr.174] 2 . several exceptions to the rule which are as follows:(a) Income of non-resident shipping companies where they do not have any representative in India [Sec. Income of previous year of an assessee is taxed during the following assessment year at the rates prescribed by the relevant Finance Act.10.3. the date on which the source of income newly comes into existence and ending on the immediately falling March 31.2004. Thus.e.

which is declared by general or social order of the Board to be a company. or (b) any body corporate incorporated by or under the laws of a country outside India. 2(31)] Income-tax is charged in respect of the total income of the previous year of every ‘person’. (iv) A Firm: it is a partnership firm.tax Act. or (c) any institution.1970.. 1961) as a company on or before the 1 st day of April. income of previous year may be taxed in that previous year itself. minor or a person of sound or unsound mind. male.(c) Income of association of persons or body of individuals or artificial juridical person formed for a particular event or purpose [Sec. the term “person” includes (i) An Individual: a natural human being. association or body which is or was assessable or was assessed as a company for any assessment year under the Indian Income. (v) An Association of Persons or a Body of Individuals whether incorporated or not: The difference between ‘Association of person’ and ‘body of individuals’ is that where as ‘association’ implies a voluntary getting together for a definite purpose a ‘body of 3 . i. or (d) any institution. 1992 or which is or was assessable or was assessed under this Act (Income-tax Act.e. (iii) A Company: (a) any Indian company. female.174A] (d) Income of person trying to alienate his assets with a view to avoid tax [Sec. association or body whether Indian or non-Indian.176] In the above cases.175] and (e) Income of discontinued business [Sec. at the rates applicable to that previous year. (ii) A Hindu undivided family: it consists of all persons lineally descended from a common ancestor and includes their wives and unmarried daughters. Person [Sec.

The aforesaid definition is inclusive. (4) Perquisite or profit in lieu of salary taxable under Sec.individuals’ would be just a body without an intention to get-together. 4 INCOME-[SEC. deity or charitable institution or an endowment for charitable or religious purposes falls under ‘artificial juridical person’. the members of ‘body of individuals’ can be individuals only whereas the members of an ‘association of persons’ can be two or more firms or Hindu undivided families etc.2 (24)] The definition of the term “income” in Sec. The definition of “income” in Sec. or other authority legally entitled to or entrusted by the Government with the control and management of a Municipal or local fund. The term “income” not only indicates those things which are included in Sec. 17(2) and (3). and not exclusive. not falling within any of the above categories: This is a residuary clause. body of port commissioners. (vii) Every Artificial Juridical Person. If the assessee does not fall in any of the first six categories. may still fall in the four corners of the term “person” and accordingly may be liable to tax under Sec. 2(24). (5) Special allowance or benefit. a statutory corporation. (3) Voluntary contributions received by religious or charitable trust or institution. but also includes such thing which the term signifies according to its general and natural meaning. other than perquisite specially granted to as in assessee to meet expenses wholly. he is assessed under this clause . 2(24) of the Income-tax Act includes (1) Profits and gains: (2) Dividend. Therefore. 2(24) is inclusive and not exclusive. (vi) A Local Authority: it means a municipal committee. Moreover. necessarily and exclusively for the performance of the duties of an office or employment of profit. not falling in the above mentioned categories.Generally. There are seven categories of persons chargeable to tax under the Act. any person. 4 . (6) Allowance granted to assessee to meet his personal expenses at the place where the duties of his office or employment of profit are or ordinarily performed by him or at a place where he ordinarily resides or to compensate him for the increased cost of living. district board.

(14) Winnings from lotteries.289ii)] Income derived by a trade. and 5 . bonus. (8) Any sum paid by a company in respect of any obligation which. races including horse races. would have been payable by the beneficiary. card games and other games of any sort. (9) Value of any benefit or perquisite obtained by a representative assessee mentioned in Sec. 160(1) (iii) or (iv) or by any person on whose behalf or for whose benefit any income is receivable by the representative assessee and any sum for such payment. 45. but such payment would have been payable by the director or the person having substantial interest. (iiib). crossword puzzles. salary.(7) The value of any benefit or perquisite obtained from the company by a director or by a person having substantial interest in the company or by a relative of the Director of such person. commission or remuneration received by a partner of a firm from such firm [Sec. 28(iv)] (v) Any interest. professional or similar association for specific services performed for its members [Sec. (iiic)] (iv) Value of any benefit or perquisite arising from business or the exercising profession [Sec. 1948 or any other fund for the welfare of such employees. 59] (12) Any capital gains chargeable u/s. professional or similar association from specific services performed for its members as referred to in sec. 28 (ii) or income derived by a trade. 28(iii) or any amount obtained by way of remission or cessation of liability previously allowed as deduction or balancing charge or the excess of the amount of deduction in respect of expenditure on scientific research or amount of bad debt subsequently recovered. (11) Business income includes (i) (ii) Compensation money [Sec. (13) Profits and gains of any insurance carried on by a mutual insurance company or by a co-operative society. 28(v)] (vi) Deemed business income [Sec 41] and deemed income chargeable under the head other sources [Sec. (15) Sum received by the assessee from his employees as contributions to any provident fund or superannuation fund set up under the provisions of the Employees’ state Insurance Act. (10) Any compensation or other sum due to or received by any person referred to in Sec. 28(iiia). 28(iii)] (iii) Export incentives [Sec.

house property. Types of Income (a) Indian Income (i) Income accrued (earned) or deemed to have accrued in India and received or deemed to have received in India.(16) Any sum received under a key-men Insurance policy including the sum allocation by way of bonus on such policy. INCIDENCE OF TAX (U/S 5) Incidence of tax for a person depends upon his residential status and place of accrual and receipt of income. (c) (b) From business or profession wholly controlled Tax (d) from outside India. (b) Foreign Income An Income which is not an Indian income is a foreign income i. Incidence of tax for different residential status: Types of Income Ordinary Resident Not OrdinaryNon Resident (OR) Resident(NOR) (NR) Tax Tax No Tax No Tax No Tax Tax No Tax No Tax No Tax No Tax 1. (includes salary. (ii) Income accrued (earned) or deemed to have accrued in India but received or deemed to have received outside India (iii) Income accrued (earned) or deemed to have accrued outside India but received or deemed to have received in India. 2 (24) of the income-tax act is inclusive and not exhaustive. an income accrued or deemed to have accrued outside India and received or deemed to have received outside India is a foreign income. Foreign Income (a) From business or profession wholly or partly Tax controlled from outside India. No Tax (g) capital gains and other source) where 6 . The above list given in Sec. In short an Income is said to be an Indian Income if either accrued or received or both is in India.e. (e) (c) From any other source other than business Tax (f) or profession. Indian Income Tax 2.

Gift received from a non relative exceeding Rs.place of (h) (i) (j) (k) (l) (m) (n) (o) (p) (q) (r) during control doesn’t matter. EXEMPTED INCOMES (U/S 10) (Applicable to Individual assessee only) Exempted incomes are those incomes on which income tax shall not be chargeable. Gift received from a relative maximum limit) 5. The above income shall be from agricultural purpose and the land shall be situated in India 7 . 3. Tax No Tax Tax No Tax Tax 4. The words received and remitted are not same. No Tax 3. However dividends received from Non-domestic co are taxable (foreign co). If the place of accrual is given as India and if the place of receipt is not given. (1) Agricultural income is exempt from tax U/S 10(1). Past untaxed profits brought into India previous year.000 (The whole shall be taxed and not the difference) sum (7) Notes: 1.e. India. Dividend received from a domestic co including Indian co is exempt from tax U/S 10(34). accrued and received are considered and not the word remitted. 2. Agricultural income is exempt from tax U/S 10(1) if it is from a land situated in India. 4. it is assumed to be the same as place of accrual i. To classify an income as Indian or foreign income. 50.

(12) Annual value of any one palace of an Ex-Ruler of Indian States shall be fully exempt U/S 10(19A). (10) Reward or award either in cash or in kind instituted and approved by government in public interest is fully exempt U/S 10(17A). or interest on notified savings certificates is exempt U/S 10(4). However no part of the palace shall be let out. (5) Remuneration received from foreign state under co-operative technical assistance program is fully exempt U/S 10(8). 8 . (11) Family pension received by the widow or children of member of armed force is completely exempt from tax U/S 10(19). (4) Any income of a non resident by way of interest on notified government securities or interest on NRI external account in India notified by FERA. constituency allowance and other allowance to MLAs and MP’s is fully exempt U/S 10(17).(2) Any sum of money received by an individual as a member of Hindu Undivided Family (HUF) shall be exempt from tax U/S 10(2) since HUF is a separate taxable entity. However the above allowances shall not exceed Rs. However death of such person shall had occurred while on duty. (6) Remuneration as consultant out of funds made available to international agencies under technical assistance program approved by government is fully exempt U/S 10(8A). 2000 pm. (3) Share of profits received by a partner from a partnership firm is exempt U/S 10(2A) since partnership firm is a separate taxable entity. (7) Income from notified bonds/deposits and securities is fully exempt U/S 10(15) (8) Scholarship received to meet cost of education is fully exempt U/S 10(16) (9) Daily allowance.

(14) Subsidy received by an assessee engaged in growing and manufacturing of tea by the tea board for the purpose of replacement is fully exempt U/S 10(30). BASIC CONDITIONS [U/S 6(1)] (a) One should be in India during the relevant previous year for a period of 182 days or more. RESIDENTIAL STATUS [SEC.e. ADDITIONAL CONITIONS [U/S 6(6)] (i) A person should be a resident in India for at least 2 years out of 10 years immediately preceding the relevant previous year. Note: A person is said to be a resident in India if he satisfies atleast any one of the above mentioned basic conditions U/S 6(1) 9 . OR (b) One should be in India for a period of 60 days or more during the relevant previous year AND 365 days or more during 4 years immediately preceding the relevant previous year. Cardamom or other notified commodities by the relevant board is fully exempt U/S 10(31). Note: The word “AND” in basic condition (b) Signifies that assessee has to satisfy both parts i.(13) Income of a SC/ST by way of interest or dividend on specified securities is fully exempt U/S 10(26). (15) Subsidy received by an assessee engaged in growing and manufacturing of Rubber. Coffee. 6] The test of Basic conditions and additional determine the residential status of an Individual. 60 days or more during the relevant previous year and 365 days or more during 4 years immediately preceding the relevant previous year.

Different Residential Status (i) Resident: An individual is said to be a resident in India if he satisfies at least any one of the above mentioned two basic conditions U/S 6(1) (a) Ordinary Resident: A Resident is said to be an “ordinary Resident” if he satisfies both the additional conditions given above U/S 6(6) (b) Not Ordinary Resident: A Resident is said to be a “Not Ordinary Resident” if he satisfies one or none of the additional conditions given above U/S 6(6) (ii) Non. (ii) An Indian citizen who leaves India during the previous year as a member of crew of Indian ship.Resident: An Individual is said to be a nonresident if he satisfies none of the basic conditions and additional conditions being irrelevant. (iii) An Indian citizen or a person of Indian origin who comes to India on a visit during the previous year. EXCEPTIONS TO THE RULE OF RESIDENTIAL STATUS: The period of 60 days mentioned in basic condition (b) U/S 6(1) shall be extended to 182 days in the following situations: (i) An Indian citizen who leaves India during the previous year for the purpose of employment outside India. 10 .(ii) He should have stayed in India for a period of 730 days or more during 7 years immediately preceding the relevant previous year.