Basic Concepts under Income Tax Act 1961

 Some of the basic concepts Under Income Tax Act 1961 are mentioned below:

1. Assessee: 

As per section 2(7), an assessee is a person who is liable to pay the taxes under any provision of Income Tax Act 1961. Assessee can also be a person with respect of whom any proceedings have been initiated or whose income has been assessed under the Income Tax Act 1961, Assessee is any person who is deemed assessee under any of the provisions of this act or an assessee in default under any provisions of this Act.

2. Assessment:

Assessment is primarily a process of determining the correctness of income declared by the assessee and calculating the amount of tax payable by him and further procedure of imposing that tax liability on that person.

3. Previous year:

As per Section 2(34) of the defines Previous Year as

(a). Previous year means the previous year as defined in section 3; 

(b). As per section 3 of the Income Tax Act 1961, previous year is defined as the financial year which immediately precedes the assessment year. Income earned in a particular 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 it becomes taxable is known as ‘assessment year’. The Financial year is a period of 12 months beginning from April 1 to March 31 of next year. For instance, if your financial year is from 1 April 2022 to 31 March 2023, then it is known as FY 2022-23 and the assessment year would be AY 2023-24.

4. Assessmenr year:

As per section 2(9), Assessment year is the 12 months’ period commencing on 1st of April till 31st March of next year. It is the year in which the income of previous year is assessed. For instance, if your previous year is from 1 April 2022 to 31 March 2023, then the assessment year begins on 1st of April 2023 to 31st march 2024.

5. Person:

As per section 2(31), “person" includes— 

(i) an individual,

(ii) a Hindu undivided family, 

(iii) a company,

(iv) a firm, 

(v) an association of persons or a body of individuals, whether incorporated or not, 

(vi) a local authority, and (vii) every artificial juridical person, not falling within any of the preceding sub clauses.

6. Heads of Income:

As per section 14, all income shall, for the purposes of charge of income-tax and computation of total income, be classified under the following heads of income:— 

(a). Salaries 

(b). Income from house property 

(c). Profits and gains of business or profession 

(d). Capital gains 

(e). Income from other sources

7. Gross Total Income:

As per Sec. 14 of the Act, the income of a person is calculated under the following fiveheads: 

(i) Salaries, 

(ii) Income from house property, 

(iii) Profits and gains of business or profession, 

(iv) Capital gains, 

(v) Income from other sources. 

Aggregate of incomes computed under the above 5 heads, after applying clubbing provisions and making adjustments of set off and carry forward of losses, is known as Gross Total Income. 

8. Total Income:

According to Section 2(45), total income of an assessee is gross total income as reduced by the amount deductible under Chapter VIA, (i.e. Section.80C to 80U) .

9. Maximum marginal rate of tax:

As per section 29(C), "Maximum marginal rate" means the rate of income-tax (including surcharge on income-tax, if any) applicable in relation to the highest slab of income in the case of an individual, association of persons or, as the case may be, body of individuals as specified in the Finance Act of the relevant year. 

10. Income:

The definition of Income as per section 2 (24) includes— 

(i) profits and gains ; 

(ii) dividend ; 

(iia) voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes or by an association or institution referred to in clause (21) or clause (23), or by a fund or trust or institution referred to in sub-clause (iv) or sub-clause (v) or by any university or other educational institution referred to in sub-clause (iiiad) or sub-clause (vi) or by any hospital or other institution referred to in sub-clause (iiiae) or sub-clause (via) of clause (23C) of section 10 or by an electoral trust. Explanation.—For the purposes of this sub-clause, "trust" includes any other legal obligation ; 

(iii) the value of any perquisite or profit in lieu of salary taxable under clauses (2) and (3) of section 17 ;

(iiia) any special allowance or benefit, other than perquisite included under subclause (iii), specifically granted to the assessee to meet expenses wholly, necessarily and exclusively for the performance of the duties of an office or employment of profit ; 

(iiib) any allowance granted to the assessee either to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at a place where he ordinarily resides or to compensate him for the increased cost of living ; 

(iv) the value of any benefit or perquisite, whether convertible into money or not, obtained from a company either by a director or by a person who has a substantial interest in the company, or by a relative of the director or such person, and any sum paid by any such company in respect of any obligation which, but for such payment, would have been payable by the director or other person aforesaid ; 

(iva) the value of any benefit or perquisite, whether convertible into money or not, obtained by any representative assessee mentioned in clause (iii) or clause (iv) of sub-section (1) of section 160 or by any person on whose behalf or for whose benefit any income is receivable by the representative assessee (such person being hereafter in this sub-clause referred to as the "beneficiary") and any sum paid by the representative assessee in respect of any obligation which, but for such payment, would have been payable by the beneficiary ; 

(v) any sum chargeable to income-tax under clauses (ii) and (iii) of section 28 or section 41 or section 59 ; 

(va) any sum chargeable to income-tax under clause (iiia) of section 28 ; 

(vb) any sum chargeable to income-tax under clause (iiib) of section 28 ; (vc) any sum chargeable to income-tax under clause (iiic) of section 28 ; 

(vd) the value of any benefit or perquisite taxable under clause (iv) of section 28 ; (ve) any sum chargeable to income-tax under clause (v) of section 28 ; 

(vi) any capital gains chargeable under section 45 ; 

(vii) the profits and gains of any business of insurance carried on by a mutual insurance company or by a co-operative society, computed in accordance with section 44 or any surplus taken to be such profits and gains by virtue of provisions contained in the First Schedule ; 

(viia) the profits and gains of any business of banking (including providing credit facilities) carried on by a co-operative society with its members;

 (viii) [Omitted by the Finance Act, 1988, w.e.f. 1-4-1988. Original sub-clause (viii) was inserted by the Finance Act, 1964, w.e.f. 1-4-1964;] 

(ix) any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever. 

(x) any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees' State Insurance Act, 1948 (34 of 1948), or any other fund for the welfare of such employees ; 

(xi) any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy.  

(xii) any sum referred to in clause (va) of section 28; [(xiia) the fair market value of inventory referred to in clause (via) of section 28;] 

(xiii) any sum referred to in clause (v) of sub-section (2) of section 56; 

(xiv) any sum referred to in clause (vi) of sub-section (2) of section 56; (xv) any sum of money or value of property referred to in clause (vii) or clause (viia) of sub-section (2) of section 56; 

(xvi) any consideration received for issue of shares as exceeds the fair market value of the shares referred to in clause (viib) of sub-section (2) of section 56; 

(xvii) any sum of money referred to in clause (ix) of sub-section (2) of section 56; 

(xviia) any sum of money or value of property referred to in clause (x) of subsection (2) of section 56;

(xviib) any compensation or other payment referred to in clause (xi) of sub-section (2) of section 56;

(xviii) assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee other than,— (a) the subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset in accordance with the provisions of Explanation 10 to clause (1) of section 43; or (b) the subsidy or grant by the Central Government for the purpose of the corpus of a trust or institution established by the Central Government or a State Government, as the case may be;

11. Agricultural Income:

As per section 10(1), agricultural income earned by the taxpayer in India is exempt from tax. Agricultural income is defined under section 2(1A) of the Income-tax Act. As per section 2(1A), agricultural income generally means: 

(a) Any rent or revenue derived from land which is situated in India and is used for agricultural purposes. 

(b) Any income derived from such land by agriculture operations including processing of agricultural produce so as to render it fit for the market or sale of such produce. 

(c) Any income attributable to a farm house subject to satisfaction of certain conditions specified in this regard in section 2(1A). 

Any income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income.