General
What is Income Tax?
It is a tax imposed by the Government of India on any body who earns income in India. This tax is levied on the strength of an Act called 'Income tax Act' which was passed by the Parliament of India.
What do you mean by 'income earned in India'?
Income earned in India is not limited to income earned within the geographical limits or boundaries of the country. Certain incomes are also deemed to have been earned in India although they may have been earned outside the country.
Who administers the Income-Tax Act?
The job of monitoring the Income-tax collection by the government is entrusted to a Department called 'Income-Tax'. This department functions under the 'Department of Revenue, Ministry of Finance, Government of India'.
What is the period for which a person's income is taken into account for purpose of Income tax?
Income earned in the twelve months contained in the period from 1st April to 31st March (commonly called 'Financial Year' [F.Y.]) is taken into account for purposes of calculating Income Tax. Under the income tax Act this period is called a 'Previous year'.
What is an 'Assessment Year'?
It is the twelve-month period 1st April to 31st March immediately following the previous year [refer answer-4]. In the Assessment year a person files his return for the income earned in the previous year. For example for F.Y.2019-20 the A.Y. is 2020-21.
Who is supposed to pay Income Tax?
Any Individual or group of Individual or artificial bodies who/which have earned income during the previous years are required to pay Income tax on it. The IT Act recognizes the earners of income under seven [7] categories. Each category is called a 'Status'. These are Individuals, Hindu Undivided Family [HUF], Association of Persons [AOP], Body of individuals [BOI], Firms, Companies, Local authority, Artificial juridical person.
When Companies pay taxes under the Income tax Act it is called 'Corporate tax'.
Is Income tax Act applicable only to residents?
No, The Income tax Act applies to all persons who earn income in India. Whether they are resident or non-resident.
Who is a resident?
If an individual stays in India for 182 days or more in a year, he is treated as resident in that year regardless of his citizenship. If the stay is less than 182 days he is a non-resident.
How can I know whether a company is resident or non-resident?
A company is considered as 'resident' if it is incorporated under the Indian Companies Act. A foreign company can also become a 'resident' if the control and management of its affairs is done entirely in India during the previous year.
How is resident/ non-resident status relevant for levy of income tax?
In case of resident individuals and companies, their global income is taxable in India. However non-residents have to pay tax only on the income earned in India or from a source/activity in India.
I am an Indian scientist, who had gone abroad on a government project. Should my return of income include income earned/received abroad?
It depends on your residential status. If you are a resident all incomes earned globally are taxable. Therefore the same needs to be included in the return. However if any tax is paid on that income in the foreign country, you will get credit for the same.
Taxable Income
What does the Income Tax Department consider as income?
The word 'Income' has a very broad and inclusive meaning. In case of a salaried person, all that is received from an employer in cash, kind or as a facility is considered as income. For a businessman, his net profits will constitute income. Income may also flow from investments in the form of Interest, Dividend, and Commission etc. Infect the Income Tax Act does not differentiate between legal and illegal income for purpose of taxation. Under the Act, all incomes earned by persons are classified into 5 different heads, such as:
(A) Income from Salary
(B) Income from House property
(C) Income from Business or Profession
(D) Income from capital gains
(E) Income from other sources
Are all receipts considered as income?
No. Receipts can be classified into two kinds. A) Revenue receipt B) Capital receipt.
The general rule under the Income tax Act is that, all revenue receipt are taxable unless a receipt is specifically exempted and all capital receipts are exempt from taxation unless there is a provision to tax it. Gifts and loans etc are in the nature of capital receipts not attracting tax.
What are revenue and capital receipts?
In a simple language, all that one derives from a source is called revenue receipt. For ex. Salary from employment, Rent from property, Interest or Divided from Investments, Profits from business. When an income is earned on account of transacting the source itself, it is called Capital receipt. For ex. Sale of land and building, business, investment etc.
Is income tax levied on gifts received by a person?
Gift exceeding Rs 50,000 is taxable unless it is received from
(A) any person who is a relative; or
(B) on occasion of marriage; or
(C) under will or by inheritance or in contemplation of death of the payer
I own shares of various Indian companies and receive dividends. Is it taxable?
No. The dividend declared by Indian companies is not taxable in the hands of the share holders because tax on distributed profits have already been borne by the company.
I am a religious preacher and earn money from preaching. Do I have to pay tax and file return?
Yes.
Can I claim deduction for my personal and household expenditure in calculating my income or profit?
No.
Most of my income is given away in charity and I am left with just enough to meet my personal requirement. What will be considered as my income?
What is done after the income is earned does not determine its taxation. However charitable contribution to approved institutions will give you the benefit of certain deductions from taxable income.
My daughter stays in USA. She owns a house in India and has let it out. She has asked tenants to pay rent to me so that I can a lead decent life. She has not received any rent. Is she still liable to tax? What if she transfers the house to me?
Your daughter is the owner of the house and therefore she is liable to pay tax even though you receive the rent. If the house is transferred, then you would become the owner and you will have to pay tax on the rental income.
My children living abroad send me Rs.20000/- per month for my maintenance. Would this be considered as my income?
Is there any limit of income below which I need not pay taxes?
At the moment individual, HUF, AOP, and BOI having income below rupees two lakh fifty thousand need not pay any income tax. For other categories [persons] such as co-operatives societies, firms, companies and local authorities no such exempted limits exists, so they have to pay taxes on their entire income. In cases of senior citizens aged 60 years and above the exempted limit for the financial year 2019-20 is rupees three lakh, and in cases of super senior citizens aged 80 years and above the exempted limit for the financial year 2019-20 is rupees five lakh.
