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Income Tax & Taxable Income

Income-tax is charged on the Total Income of a Previous Year at the rates prescribed for the Assessment Year. 'Assessment Year' means the period of 12 months commencing on April 1, every year. 'Previous Year' is the financial year immediately preceding the assessment year.

A 'resident' tax payer is charged income tax on his global income, subject to a double taxation relief in respect of foreign incomes taxed abroad.

In the case of a non-resident, income-tax is charged only on incomes received, accruing or arising india or which are deemed to be received, accrued or arisen india.

For the purpose of computing total income and charging tax thereon, income from various sources is classified under the following heads:

  1. Salaries
  2. Income from House Property
  3. Profits and Gains of business or profession
  4. Capital Gains
  5. Income from Other Sources

These five heads of income are mutually exclusive. If any income falls under one head, it cannot be considered under any other head. Income under each head has to be computed as per the provisions under that head. Then, subject to provisions of set off of losses between the heads of income, the income under various heads has to be added to arrive at a gross total income. From this gross total income, deductions under Chapter VIA are to be allowed to arrive at the total income.

On this total income tax is calculated at the rates specified in the relevant Finance Act or the rates given in the Income Tax Act itself {as in the case of long term capital gains]. From this tax, rebates and reliefs, if any, allowable under Chapter VIII are allowed to arrive at the total tax payable by the assessee. The above procedure is summarized below:

Gross Total Income=A+B+C+D+E

Total Taxable Income=Gross Total Income - Deductions allowable from Income.

Total Tax Payable=Tax on Total Income - Rebates and relief allowable from Income Tax.

Frequently Asked Questions

It is a tax imposed by the Government of India on any body who earns income india. This tax is levied on the strength of an Act called Income Tax Act which was passed by the Parliament of India.
Income earned 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 india although they may have been earned outside the country.
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.
Income earned in the twelve months contained in the period from 1st April to 31st March (commonly called Financial Year{FY]) is taken into account for purposes of calculating Income Tax. Under the income tax Act this period is called previous year.
It is the twelve-month period 1st April to 31st March immediately following the previous year{the financial year in which the income was earned]. In the Assessment year a person files his return for the income earned in the previous year. For example for Financial Year 2006-07 the Assessment Year is 2007-08.
Any Individual or group of Individuals 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 and Artificial Judicial person.

When Companies pay taxes under the Income tax Act it is called Corporate tax.
No, The Income tax Act applies to all persons who earn income india. Whether they are resident or non-resident.
If an individual stays 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.
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 india during the previous year.
In case of resident individuals and companies, their global income is taxable india. However non-residents have to pay tax only on the income earned india or from a source/activity india.
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.
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. In fact 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:
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.

In a simple language, all that one derives from a source is called revenue receipt. For example 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 example Sale of land and building, business, investment etc.
Gift exceeding Rs 25,000 is taxable unless it is received from any person who is a relative or on occasion of marriage or under will or by inheritance or in contemplation of death of the payer.
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.
Yes.
No
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.
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.
No.
At the moment individual, HUF, AOP, and BOI having income below ₹ 200,000/- need not pay any income tax. For other categories 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. For more details, please visit Income Tax Slabs and Rates
Your agricultural income is not taxable per se. However, if you have any other source of income like income from investments, property etc, while calculating tax on them, your agricultural income will be taken into account, so that you pay tax at a higher rate on that other income.
To consider an activity as 'agriculture' the basic operation such as tilling, sowing, irrigating & harvesting should have been carried out. Thereafter what is sold in the market should be the primary product harvested. Receipt from such sale is considered as agricultural receipt. If however some further processing or modification were done to the harvested product to enhance its marketable value then such enhanced value would be considered as business income.
No.
For every source of income you have to maintain proof of earning and the records specified under the IT Act. In case, no such records have been laid down, you should maintain reasonable level of records with which you can support the claim of income.
Even if you have only agricultural income you are advised to maintain some proof of your agricultural earnings.
Yes.

Disclaimer : This site does not make any claim that the information provided on its pages is correct and up-to-date. The contents of this site cannot be treated or interpreted as a statement of law. In case, any loss or damage is caused to any person due to his/her treating or interpreting the contents of this site or any part thereof as correct, complete and up-to-date statement of law out of ignorance or otherwise, this site will not be liable in any manner whatsoever for such loss or damage.
In case of any doubt / clarification, please visit the official website of Income Tax Department.

Updated : Jan 24, 2019
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