UNDERSTAND BASICS OF TAX

What is tax:- Tax is nothing but charge levy by government as per authority of law.

Why tax is important:-

  • To fund essential services like schools, hospitals, roads, police, and firefighters that everyone relies on.      
  • The taxation is primary sources of revenue for government for incurring such public expenditure
  • In other words, Government is taking taxes from public through its one hand and through another hand it incurs welfare expenditure for public at large.
  • But fun fact is no one enjoys handing over there hard earn money to the government through taxes.  

As per Section 4, Income of the previous year of a person is charged to tax in the immediately following assessment year

Previous year [Section 3]

  • Previous year means the financial year immediately preceding the assessment year.
  • Income earned in a year is assessed in the next year.
  • The year in which income is earned is known as the previous year and the next year in which income is assessed is known as assessment year. 
  • It is mandatory for all assessee to follow the financial year (from 1st April to 31st March ) as previous year for income tax purposes

Business or profession newly set up during the financial year

If a source of income comes into existence in the said financial year, then, the previous year will commence from the date on which the source of income newly comes into existence and will end with 31st March of the financial year.

Person [Section 2(31)]

  • The term person includes the following
  • An individual
  • A Hindu undivided family(HUF)
  • A company
  • A firm (Including LLP)
  • An association of persons (AOP) or a body of individuals (BOI) whether incorporated or not
  • A local authority
  • Every artificial juridical person not falling within any of preceding categories.

Assessment year (A.Y) [Section 2(9)]

  • Assessment year means the period of 12 months commencing on the 1st day of April every year.
  • It is the year (just after the previous year) in which income earned in the previous year is charge to tax.
  • E.g, A.Y 2024-25 is a year, which commences on April 1, 2024 and ends on March 31, 2025. Income of an assessee earned in previous year 2023-24 is assessed in the A.Y. 2024-25
  • E.g, A.Y. 2024-25 is a year, which commences on April 1 2023, and ends on March 31,2024. Income of an assessee earned in the previous year 2023-24 is assessed in the A.Y. 2024-25

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 this act
  • Every person in respect of whom any proceeding under  this act has been taken(Whether or not he liable for any tax, interest or penalty) for the assessment of his income or loss or the amount of refund due to him.
  • A person who is assessable in respect of income or loss of another person.
  • Every person who is deemed to be an assessee in default under any provision of this act. E.g. A person who was deemed to be an ‘assessee in default’ under any provision of this Act. E.g A person, who was liable to deduct tax but has failed to do so, shall be treated as an assessee in default.