IMPORTANT

DEFINITIONS
 ASSESSMENT YEAR

The assessment year (AY) is the year that

comes
after the FY. This is the time in which the
income
earned during FY is assessed and taxed. Both FY
and AY start on 1 April and end on 31 March. For
instance, FY 2019-20 and AY 2020-21 are one
and
the same
 PREVIOUS YEAR

• As per Section 3 of the Income Tax Act, 1961, Previous Year is the Year
immediately preceding the assessment year. Previous year is also known
as Financial Year. It basically means the period starting from April 1 and
ending on March 31 of the next year. For the income earned in the
previous/financial year, tax is paid in the assessment year.
• However, in those cases, where a new business/profession/ new source
of
income, is set up in a particular previous/financial year, then in such
cases, the previous/financial year will not begin/calculated from 1st
April
but will begin/ calculated from the date when the new
business/profession/ new source of income was set up.
 • Income earned by those person who are likely to
transfer their property in order to
avoid tax
• As per Section 175 of the Income Tax Act, 1961, those
people who are suspected to
transfer their property before the beginning of the
assessment year, in order to avoid
tax, the income of those people are collected in the
previous year itself. In this cases it
is mandatory for the Assessment Officer to charge Tax.
• Income earned from a discontinued business.
• As per Section 176 of the Income Tax Act, 1961, the tax on
Income from a business
which has been discontinued in that previous year can be
collected in that previous
year itself. However, this is completely on the discretion of
the Assessment Officer and
it is not mandatory for him to charge in the previous year
PREVIOUS YEAR

• YEAR 2020-21

• For the year 2020-21, if it is considered to be the previous year, then in this case, the previous year begins on
1st

• April 2020 and will end on 31stMarch 2021. And the assessment year for this previous/financial year will be
2021-22, i.e, will be from 1st April, 2021 to 31st March 2022.Similary if the year
2020-21 was the assessment year, then the year 2019-20 would have been the previous / financial Year.

• Tax on Income earned in the previous year is paid in the assessment year. However, there are a few
exceptions where the tax on Income earned in the previous year is paid in the
previous year itself. These exceptions are:

• Income earned by a non resident through a shipping business in India
• As per Section 172 of the Income Tax Act, 1961, the income earned by a non-resident from a shipping
business in India, has to be taxed in the previous year itself. The non resident in
this case either has to own the ship or has to charter the ship. The ship in this case should carry
passengers/livestock/mail/goods, which are shipped to Indian Port. The rationale behind
this provision is that the person /non resident may or may not have agent in India, and once he leaves India, it
will get difficult to recover tax from him. In this cases it is mandatory for
the Assessment Officer to charge Tax.
• Income earned by the person who is leaving India permanently or for a
long period of time.
• As per Section 174 of the Income Tax Act, 1961, probable income up-till the
probable date of departure of the person leaving, is taxable. Again the rationale
behind this provision is that
once the person leaves the country it might get very difficult to recover the tax from
him. In this cases it is mandatory for the Assessment Officer to charge Tax.
• Income earned by those bodies which are formed for a short period of
Time.
• As per Section 174A of the Income Tax Act, 1961, the tax on income from those
bodies which are formed for a very short period are collected in the previous year
itself. The rationale
behind this is that these bodies may be dissolved before the beginning of the
assessment year and then collection of tax from them might get difficult. In this
cases it is mandatory for
the Assessment Officer to charge Tax.
 PERSON

Person includes :
• an Individual;
• a Hindu Undivided Family (HUF) ;
• a Company;
• a Firm
• an association of persons or a body of individuals, whether
incorporated or not;
• a local authority; and
• every artificial juridical person not falling within any of the
preceding sub-clauses.
• Association of Persons or Body of Individuals or a Local authority
or Artificial Juridical
Persons shall be deemed to be a person whether or not, such
persons are formed or
established or incorporated with the object of deriving profits or
gains or income
The word person is a very wide term and embraces in itself the
following :
• Individual. It refers to a natural human being whether male or female,
minor or major.
• Hindu Undivided Family. It is a relationship created due to operation of
Hindu Law.
The manager of HUF is called “Karta” and its members are called
‘Coparceners’.
• Company. It is an artificial person registered under Indian Companies Act
1956 or any
other law.
• Firm. It is an entity which comes into existence as a result of partnership
agreement
between persons to share profits of the business carried on by all or any one of
them.
Though, a partnership firm does not have a separate legal entity, yet it has
been
regarded as a separate entity under Income Tax Act. Under Income Tax Act,
1961, a
partnership firm can be of the following two types
• a firm which fulfil the conditions prescribed u/s 184.
• A firm which does not fulfil the conditions prescribed u/s 184
• It is important to note that for Income Tax purposes, a limited liability partnership (LLP)
constituted under the LLP Act, 2008 is
also treated as a firm.

• Association of Persons or Body of Individuals.: Co-operative societies, MARKFED,
NAFED etc. are the examples of such
persons. When persons combine togather to carry on a joint enterprise and they do not
constitute partnership under the
ambit of law, they are assessable as an association of persons. Receiving income jointly is not
the only feature of an association
of persons. There must be common purpose, and common action to achieve common purpose
i.e. to earn income. An AOP can have firms, companies, associations and individuals as its
members.

• A body of individuals (BOl) cannot have non-individuals as its members. Only natural human
beings can be members of a
body of individuals.

• Whether a particular group is AOP. or BOl. is a question of fact to be decided in each case
separately.
• Local Authority. Municipality, Panchayat, Cantonment Board, Port Trust etc. are called
local authorities.
•Artificial Juridical Person. A public corporation established under special Act of
legislature and a body having juristic
personality of its own are known to be Artificial Juridical Persons. Universities are an
important example of this category.
 ASSESSE

An income tax assessee is a person who pays tax or any

sum of money under the
provisions of the Income Tax Act, 1961.
The term ‘assessee’ covers everyone who has been
assessed for his income, the income
of another person for which he is assessable, or the profit
and loss he has sustained.

• Now that you know who an assessee is, let us get deeper
and understand the types of
assessees as per the Income Tax Act:
 INCOME

In microeconomics, income is the consumption and saving opportunity gained by

an entity within a specified
timeframe, which is generally expressed in monetary terms.

• For households and individuals, income is a sum that includes any wage, salary,
profit, interest payment, rent,
or other form of earnings received in a given period of time (also known as gross
income). Net income is defined as the gross income minus taxes and other
deductions (e.g., mandatory pension contributions), and is
usually the basis to calculate how much income tax is owed.

• In the field of public economics, the concept may comprise the accumulation of
both monetary and nonmonetary consumption ability, with the former (monetary)
being used as a proxy for total income.

• For a firm, gross income can be defined as sum of all revenue minus the cost of
goods sold. Net income nets
out expenses: net income equals revenue minus cost of goods sold, expenses,
depreciation, interest, and
taxes.
 GROSS TOTAL INCOME AND TOTAL INCOME

The ‘gross total income’ (GTI) is the total income you

earn by adding all heads of
income. Income from salary, property, other sources,
business or profession, and capital gains earned in a
financial year are all added to arrive at the GTI.

• The ‘total income’ (TI) is derived after subtracting the

various deductions under
Section 80 from the GTI. So, you first calculate the GTI
and then subtract the deductions to arrive at the TI.
 RESIDENTIAL STATUS AND TAX LIABILITY
The taxability of an individual in India depends upon his residential status
in India for any
particular financial year. The term residential status has been coined under
the income
tax laws of India and must not be confused with an individual’s citizenship
in India. An
individual may be a citizen of India but may end up being a non-resident for
a particular
year. Similarly, a foreign citizen may end up being a resident of India for
income tax
purposes for a particular year. Also to note that the residential status of
different types
of persons viz an individual, a firm, a company etc is determined differently.
In this
article, we have discussed about how the residential status of an individual
taxpayer can
be determined for any particular financial year
Tax liability is the payment owed by an individual, a
business, or other entity to a federal,
state, or local tax authority.
• In general, a tax liability is incurred when income is
earned and when income is
generated by the sale of an investment or other asset. A
local or state sales tax may be
incurred when goods are purchased. (The U.S. does not
levy a national sales tax although
some countries do.)
• It is possible for people to have no income tax liability
if their total tax owed was zero or
if their income was below the level that would require
them to file tax returns.
 EXEMPTED INCOME

Exempt income refers to certain types or amounts of income that are not subject
to income tax. Some
types of income are exempt from federal or state income tax, or both.
• The Internal Revenue Service (IRS) determines which types of income are
exempt from federal income
tax as well as the circumstances for each exemption. Congressional action plays a
role as well, as
exemptions and the threshold amounts are often tweaked or changed entirely.
• Understanding Exempt Income
• Exempt income rules underwent certain changes under the Tax Cuts and Jobs
Act signed into law in
December 2017. For example, the Act eliminated personal exemptions from tax
years 2018 to 2026 but
roughly doubled the standard deduction. (The standard deduction for tax year
2020 is set at $12,400 for
singles and $24,800 for couples filing jointly. The numbers go up to $12,550 for
singles and $25,100 for
couples for the 2021 tax year.)