Basic Concepts: Income, Agricultural Income, Casual Income, Assessment Year, Previous Year, Gross Total Income, Total Income, Person

The tax system is governed by the Income Tax Act, 1961, which defines various terms related to income and taxation. Here are some key concepts:

The Income Tax Act, 1961, has detailed provisions and sections for the assessment and taxation of income. It is advisable to consult a tax professional or refer to the Act for more information on the specific provisions and requirements related to income and taxation in India.

Income

According to the Income Tax Act, 1961, in India, income refers to any money earned or received by an individual, HUF, company, partnership firm, LLP or any other artificial juridical person. The Income Tax Act broadly classifies income under five heads:

• Income from Salaries: This includes any salary, wages, pension, annuity, gratuity, or other payments received by an individual as a result of employment.
• Income from House Property: This includes any income earned from renting out a house or property, whether it is residential or commercial.
• Profits and Gains of Business or Profession: This includes income earned from running a business or profession, such as trading, manufacturing, or rendering services.
• Capital Gains: This includes any gains earned from the sale of capital assets, such as property, shares, mutual funds, or other investments.
• Income from Other Sources: This includes any income that does not fall under the other four heads, such as interest earned on savings accounts or fixed deposits, dividends, gifts, or winnings from lotteries or gambling.

It is important to note that income earned by an individual outside India may also be subject to income tax in India, depending on various factors such as residential status, source of income, and other conditions specified under the Income Tax Act.

The Income Tax Act also provides for various deductions and exemptions that can be claimed to reduce the taxable income. However, the specific provisions and requirements related to income and taxation may vary depending on the type of person and the nature of income earned. It is advisable to consult a tax professional or refer to the Act for more information on the specific provisions and requirements related to income and taxation in India.

Agricultural Income

Agricultural income is defined as any income derived from agricultural activities such as farming, cultivation of crops, planting and rearing of trees, animal husbandry, and sale of agricultural produce. Agricultural income is exempt from income tax under Section 10(1) of the Income Tax Act, 1961.

However, if an individual’s agricultural income exceeds Rs. 5,000 per year, they are required to include it in their total income for the purpose of income tax computation. Additionally, agricultural income exceeding Rs. 5,000 per year may also be considered while calculating the income tax liability on other sources of income.

It is important to note that while agricultural income is exempt from income tax, it is still included in the calculation of the total income for determining the tax rate applicable to an individual’s taxable income. Moreover, any income derived from agricultural activities that is not related to actual agricultural operations, such as rent from agricultural land, may not be considered as agricultural income and may be taxed as per the relevant provisions of the Income Tax Act.

Casual Income

In India, income from all sources, including casual income, is subject to income tax. Casual income refers to income that is earned from sporadic or irregular sources, and is not derived from regular employment or business activities.

Examples of casual income in India include income from:

• Renting out a property for a short period of time
• Sale of assets that were not acquired for business or investment purposes
• Winning a lottery or game show
• Income from freelance work or consulting services
• Gains from the sale of shares or securities that were not acquired for investment purposes

Casual income is taxed at the same rates as regular income, based on the total income earned during the financial year (April 1 to March 31). The income tax rates for individuals in India vary based on their income level and age, and are subject to change from year to year.

It is important to note that individuals earning casual income are required to report it on their income tax returns and pay any applicable taxes on it. Failure to do so can result in penalties and legal consequences.

Assessment Year

In India, the assessment year (AY) is the year following the financial year (FY) in which income is earned. The financial year runs from April 1 to March 31, and the assessment year begins on April 1 and ends on March 31 of the following year.

For example, if an individual earns income during the financial year 2022-23, the assessment year for that income would be 2023-24. This is the year in which the individual’s income tax return for the financial year 2022-23 would be assessed by the income tax department.

During the assessment year, individuals are required to file their income tax returns for the previous financial year, declare their income from all sources, claim deductions and exemptions, and pay any tax that is due. The income tax department verifies the information provided by the taxpayer, and assesses the tax liability for the previous financial year.

It is important for individuals to file their income tax returns on time and accurately during the assessment year to avoid penalties and legal consequences. The deadline for filing income tax returns for individuals in India is usually July 31st of the assessment year, although this deadline may be extended by the government in certain circumstances.

Previous Year

The previous year (PY) refers to the financial year in which an individual earns income. The financial year runs from April 1 to March 31, and the previous year for any assessment year is the financial year immediately preceding it.

For example, if the assessment year is 2023-24, the previous year for that assessment year would be 2022-23. This is the year in which the individual earned income, and is required to file their income tax return for that year during the assessment year.

During the previous year, individuals are required to keep accurate records of their income from all sources, including salary, business income, rental income, capital gains, and any other sources of income. They are also required to pay any advance tax or self-assessment tax during the previous year to avoid any interest or penalties.

At the end of the previous year, individuals must calculate their total income earned during the year and determine their tax liability for the year. They can then claim deductions and exemptions to reduce their taxable income, and pay any tax that is due before the end of the financial year.

It is important for individuals to keep accurate records of their income and expenses during the previous year, and to file their income tax returns accurately and on time during the assessment year to avoid penalties and legal consequences.

Gross Total Income

Gross Total Income (GTI) is the total income earned by an individual from all sources before allowing any deductions or exemptions under the Income Tax Act, 1961. It includes income from salary, business or profession, house property, capital gains, and any other sources of income.

Some examples of income that are included in Gross Total Income are:

• Salary income, including basic salary, allowances, perquisites, and any other benefits received by an employee from their employer
• Income from a business or profession, including income from freelancing, consulting, or running a business
• Rental income from a property owned by an individual
• Income from capital gains, including gains from the sale of property, stocks, mutual funds, and other investments
• Income from other sources, including interest income, dividends, and any other income that does not fall under the above categories

Once the Gross Total Income is calculated, individuals can claim deductions and exemptions under various sections of the Income Tax Act to arrive at the taxable income. These deductions and exemptions include allowances for housing loan interest, investments in specified instruments such as Public Provident Fund (PPF), National Savings Certificate (NSC), Life Insurance Premiums, etc., and other eligible deductions and exemptions as per the Income Tax Act.

The Gross Total Income is an important figure for income tax calculations and is used to determine an individual’s tax liability for the financial year. It is therefore important for individuals to accurately calculate their Gross Total Income to ensure that they pay the correct amount of tax.

Total Income

Total Income (TI) is the income earned by an individual from all sources after allowing deductions and exemptions under the Income Tax Act, 1961. It is the income on which an individual is liable to pay tax as per the Income Tax Act.

Total Income is calculated by subtracting the applicable deductions and exemptions from the Gross Total Income (GTI). Some of the deductions and exemptions allowed under the Income Tax Act include:

• Deduction for investments made in specified instruments such as Public Provident Fund (PPF), National Savings Certificate (NSC), Equity Linked Savings Scheme (ELSS), and other eligible instruments.
• Deduction for payments made towards health insurance premiums, life insurance premiums, education loans, etc.
• Deduction for interest paid on housing loan.

After taking into account all the applicable deductions and exemptions, the remaining amount is considered as the Total Income of the individual. The Total Income is used to determine the tax liability of an individual for the financial year.

The tax liability is calculated as per the income tax slab rates applicable for that particular financial year. The tax rates vary depending on the income earned by the individual during the financial year.

Person

The term “Person” under Income Tax laws refers to any individual, Hindu Undivided Family (HUF), Association of Persons (AOP), Body of Individuals (BOI), company, firm, LLP, cooperative society, or any other artificial juridical person.

• Individual: An individual refers to a natural person who is a human being and can include resident as well as non-resident individuals.
• Hindu Undivided Family (HUF): An HUF is a joint family consisting of persons lineally descended from a common ancestor and includes their wives and unmarried daughters. An HUF is taxed as a separate entity under the Income Tax Act.
• Association of Persons (AOP): An AOP refers to any group of two or more persons who come together for a common purpose, such as earning income jointly, and includes partnerships.
• Body of Individuals (BOI): A BOI refers to a group of individuals who come together for a common purpose, such as earning income jointly, but do not form a partnership.
• Company: A company is a separate legal entity that can be incorporated under the Companies Act, 2013. It can be either a domestic company or a foreign company and is taxed differently from individuals and other entities.
• Firm: A firm refers to a partnership firm that is formed under the Partnership Act, 1932, and includes limited liability partnerships (LLPs). It is taxed as a separate entity under the Income Tax Act.
• Cooperative Society: A cooperative society is an association of persons who come together to undertake some economic activity for their mutual benefit. It is taxed as a separate entity under the Income Tax Act.

Under the Income Tax Act, each type of person is taxed differently, and the tax rates and rules may vary depending on the type of entity. It is important for individuals and entities to understand their tax obligations and comply with the Income Tax laws to avoid any legal consequences and penalties.