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Decoding Income Tax-Part 1

31 Mar
income tax

Income Tax

 This article is to enable some basic understanding of Income Tax and with the series of the Income Tax I will try to explain complete Income tax ,its calculations and its complete procedure.

Part 1

Some Basis Questions on Income Tax

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 persons 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 [FY]) 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 FY:2006-07 the AY is 2007-08.

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.

 

By the end of this post we came to know what is income tax,who is suppose to pay income tax in india and to whom. 

In the next post i will discuss about the taxable components and related stuff.

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Posted by on March 31, 2012 in Entertainment

 

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