Income Tax Basic Concepts

Income Tax Act: Passed in the Year 1961. Came into force with effect from 1. 4. 1962. It is applicable to whole of India including Jammu and Kashmir.

Some Important Definitions:

Person [Section 2(31)]

As per section 2(31), Person includes:

Ø  an individual

Ø  a Hindu undivided family

Ø  a company

Ø  a firm

Ø  an association of persons or a body of individuals whether incorporated or not

Ø  a local authority

Ø  every artificial, juridical person, not falling within any of the above categories

Assessee: The person who is paying any tax to the government.

Previous year: The income earned period. Starting from 1st April and ending on 31st March of every year.

Current previous year is 1.4.2017 to 31.3.2018.

Assessment year: The taxpaying period. Starting from 1st April and ending on 31st March of every year.

Current assessment year is 1.4.2018 to 31.3.2019.

Residential Status of an Individual:

Tax Liability of an individual is based on his/her residential status not on the basis of their citizenship.

Residential Status is calculated as below-

Ordinary Resident ( Sec 6 (1)(a)):

He should be in India  for 182 days or more in current previous year.

OR (Sec 6 (1)(b))

He should be in India for Minimum 60 days in current previous year and 365 days or more in 4 preceding previous years.

If he satisfies any one of the condition, he will be the ordinary Resident.

Not Ordinary Resident: ( Sec 6 ( 6))

His stays in India should be 729 days or less in 7 preceding previous years

OR

He should be in India as resident for only one year out of 10 preceding previous years in India.

If he satisfies any one of the above condition, he will be not ordinarily resident.

Non Resident:

A person who is not satisfying any of the condition mentioned in sec 6 (1)(a) / (b) or 6 (6) will be non Resident.