COMBINE EFFORTS INSTITUTE – 98154 17313

BASIC CONCEPTS
1. Assessment Year [Section 2(9))→ “Assessment year” means the period starting from April 1
and ending on March 31 of the next year. For example, the assessment year 2019 – 20 which will
commence on April 1, 2018 will end on March 31, 2019. It should be noted that the income of the
previous year of an assessee is taxed during the next following assessment year at the rates prescribed
by the relevant Finance Act.

2. 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.

3. Previous year in the case of newly set – up business/profession→ In the case of a newly
set – up business/profession or in the case of a new source of income, the previous year is determined as
follows: -
First previous year Second and
subsequent previous
years
Starting point It commences on the date of setting up of the April 1
business/profession or on the date when the new source of
income comes into existence.
Ending point Immediately following March 31 March 31 of the
following year
Duration of 12 month or less 12 months
previous year

Problems
Q1 Y sets up a new business on March 6, 2019. What is the previous year for the A/Y 2019 –
20?
Ans. Previous year → March 6, 2018 – March 31, 2019

Q2 X sets up a new business on April 10, 2018. What is the previous year for the A/Y 2019 –
20?
Ans. Previous year → April 10, 2018 – March 31, 2019

Q3 X joins an Indian company on January 20, 2019. Prior to January 20, 2019, he is not in
employment. He has no other source of income. What are the previous years for the assessment
years for the assessment years 2019 – 20 and 2020 – 21?
Ans. Assessment year Previous year
2019-2020 January 20, 2018 to March 31, 2019
2020-21 April 1, 2019 to March 31, 2020
Q4 X joins an Indian company on April 17, 2020. Prior to April 17, 2020, he is not in
employment. He has no other source of income. What are the previous years for the assessment
years for the assessment years 2019 – 20 to 2021 – 22?
Ans. Assessment year Previous year
2019-20 No
2020-2021 No
2021-22 April 17,2020 to March 31, 2021
Q5 The income of X comprises of only property income up till March 10, 2018. On March 10,
2018, he starts a new business of computer hardware. From the data given below, find out the
taxable income of X for the assessment years 2017 – 18 to 2019 – 20:

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Property income: Rs 42,000

Business income: Rs 69,000 from March 10, 2018 to March 31, 2019 (out of which Rs 10,000 is for
the period ending March 31, 2018)
Ans.

Assessment Property income Business income Total

year Rs
Previous Income Previous year Income
year Rs
2017-2018 2016 – 2017 42,000 42,000
March 18, 2009 to
2018 – 19 2017 – 18 42,000 March 31, 2018 10,000 52,000

2019 – 20 2018 – 19 42,000 2018 – 19 59,000 1,01,000

Notes: For the Assessment year 2018-2019 The assessee has income from house property which
can be said to be his existing source of income during the previous year. His new business
income come into existence from March10,2018.So Assessee has two previous years for the A/Y
2018-2019. For the property income of ₹ 42000, the previous year is 2017-2018. For the business
income which is new source the previous year commencing from 10 March 2018 to 31 March 2018.

Q6 X Ltd., an Indian company, is engaged in the business of trading goods since 1960
[income of trading business for previous years 2017 – 18 and 2018 – 19 is Rs 1,39,000 and Rs
7,86,000 respectively. On April 6, 2019, it starts a processing unit at Pune [income of the period
ending on March 31, 2020: Rs 14,600]. Compute the income of X Ltd. Chargeable to tax for the
A/Y’s 2018 – 19 and 2019 – 20.
Ans.
Assessment Business income Total
year Rs
Previous year Income

2018– 19 2017 – 18 1,39,000 1,39,000

2019 – 20 2018 - 2019 7,86,000 7,86,000

Notes:
1. The income of Rs 14,600 should be taxable for the assessment year 2020 – 21 as it is
earned in the P/Y 2019 – 20 (April 6, 2019 to March 31 2020)

4. When income of previous year is not taxable in the immediately following assessment year
(Exceptions): - The rule that the income of the previous year is assessable as the income of the
immediately following assessment year has certain exceptions. These are: -
a) Income of non – resident 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 (isolate) his assets with a view to avoiding payment of tax;
e) Income of discontinued business.

5. Person [Section 2(31)] → The term “person” includes

a) An individual;
b) A HUF
c) A company
d) A firm;
e) An association of persons or a body of individuals, whether incorporated or not;
f) A local authority

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g) Every artificial juridical person not falling any of the preceding categories.

6. Assessee [section 2(7)]→ Assessee means a person by whom any tax or any other sum of
money (i.e. penalty or interest) is payable under the Act. The term includes the following persons:

❖ First category→ A person (as defined in section 2(31)) by whom any tax or any other sum of money
(including interest and penalty) is payable under the Act (irrespective of the fact whether any
proceeding under the Act has been taken against him or not)
❖ Second Category→ A person in respect of whom any proceeding under the Act has been taken
(whether or not he is liable for any tax, interest or penalty). Proceedings may be taken:
a) Either for the assessment of the amount of his income or of the loss sustained by him; or
b) Of the income (or loss) of any other person in respect of whom he is assessable; or
c) Of the amount of refund due to him or to such other person

❖ Third Category→ Every person who is deemed to be an assessee. For instance, a representative
assessee is deemed to be an assessee by virtue of section 160(2)

❖ Fourth Category→Every person who is deemed to be an assessee in default under any provision of
the Act. For instance, under section 201(1), any person who does not deduct tax at source, or after
deducting fails to pay such tax, is deemed to be an assessee in default.

Problems
Q7 Mrs. X, a resident (age: 35 years), is not a working woman. Her income is just Rs 26,1,000
per annum. According to section 139(1), she is supposed to file her return of income but she has
not submitted the return. She is therefore, not an assessee.
Ans. Since she is supposed to file his return of income (income being more than exempted slab of Rs
250,000), she is an assessee. So the given statement is false.

Q8 Y (age: 51 years) has deducted tax at source but he has not deposited the same. The
income – tax department has not taken any action against him. His total income is less than Rs 1,
60,000 and he has not submitted his return of income. He is not an “assessee”.
Ans. Under section 201(1), any person who does not deduct tax at source, or after deducting fails to
pay such tax, is deemed to be an assessee in default. So the given statement is false.

7. Gross Total Income (GTI)→ Gross total income means total income computed in accordance
with the provisions of the income tax act before making any deductions. As per section 14, income of a
person is computed under the following heads:
a) Salaries
b) Income from House property.
c) Profit and Gains of business or profession
d) Capital Gains.
e) Income from other sources

8. How GTI is calculated: - Rs Rs

Head 1→ Income from salaries
Income from salaries
Income by way of allowances
Taxable value of perquisites
Gross salary
Less: deduction under section 16
Entertainment allowance
Professional tax
Income from salaries

Head 2→ Income from House property

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Adjusted annual value

Less: deduction under section 24
Income from house property

Head 3 → Profit and Gains of Business or profession

Net profit as profit and loss account
Add: Amounts which are debited to P & L a/c but are not allowable as deduction under the Act
Less: Expenditure which is debited to P & L a/c but is allowable as deduction under the Act
Less: Incomes which are credited to P & L a/c but are exempted under section 10 or are taxable under
other heads of income
Add: those which are not credited to P & l a/c but are allowable as deduction under the head “profit and
gains of business”
Income from profit and gains of business

Head 4→ Capital Gains

Amount of capital gains
Less: amount exempted under sections 54, 54B, 54D, 54EC, 54F, 54G, 54GA and 54H
Income from capital gains

Head 5→Income from other sources

Gross income
Less: deductions under section 57
Income from other sources
Total [1+2+3+4+5]
Less: Adjustment on account of set – off and carry forward of losses
Gross Total Income
Less: deductions under section 80C to 80U
Total income or net income

9. Rounding – off of Income [section 288A]→ The taxable income shall be rounded off to the
nearest multiple of ten rupees and for this purpose any part of a rupee consisting of paise shall be
ignored and thereafter if such amount is not a multiple of ten, then if the last figure in that amount is five
or more, the amount shall be increased to the next higher amount which is a multiple of ten and is the last
figure is less than five, the amount shall be reduced to the next lower amount which is a multiple of ten.

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