INCOME TAX MATTERS

DIFFERENT TYPES OF HEADS UNDER INCOME TAX

As per the Section 14 Income Tax Act, 1961, there are five main income tax heads for an individual. The computation of income tax is an important part and has to be calculated according to the income of a person. For a hassle-free calculation, the income has to be classified properly so that there is no confusion regarding the same. The government has classified the sources of income under separate heads and then the income tax is computed accordingly. The provisions and rules are according to the details mentioned in the Income Tax Act.

  • Income from Salary
  • Income from House Property
  • Income from Profits and Gains of Profession or Business
  • Income from Capital Gains
  • Income from Other Sources

INCOME FROM SALARY

The first head of Income Tax heads is income from salary which this clause essentially assimilates any remuneration, which is received by an individual in terms of services provided by him based on a contract of employment. This amount qualifies to be considered for income tax only if there is an employer-employee relationship between the payer and the payee respectively. Salary also should include the basic wages or salary, advance salary, pension, commission, gratuity, perquisites as well as the annual bonus.

Allowances: An allowance is a fixed monetary amount paid by the employer to the employee for expenses related to office work. Allowances are generally included in the salary and taxed unless there are exemptions available.

INCOME FROM HOUSE PROPERTY

The rental income earned from the house property is taxable under the Income from House Property. The income calculated is levied on the expected rent if the property is not rented out. This would be the rent that would have been received from the property.

Income from House Property is the only income that is taxed on a notional basis. Tax is not only levied on the income from house property but income from commercial property and other forms of property. Various deductions such as tax deduction on a home loan are allowed under this income head.

INCOME FROM PROFITS OF BUSINESS

The third head of Income Tax heads is Income from Profits of Business in which the computation of the total income will be attributed from the income earned from the profits of business or profession. The difference between the expenses and revenue earned will be chargeable. Here is a list of the income chargeable under the head:

  • Profits earned by the assessee during the assessment year
  • Profits on income by an organization
  • Profits on sale of a certain license
  • Cash received by an individual on export under a government scheme
  • Profit, salary or bonus received as a result of a partnership in a firm
  • Benefits received in a business

INCOME FROM CAPITAL GAINS

Capital Gains are the profits or gains earned by an assessee by selling or transferring a capital asset, which was held as an investment. Any property, which is held by an assessee for business or profession, is termed as capital gains.

INCOME FROM OTHER SOURCES

Any other form of income, which is not categorized in the above-mentioned clauses, can be sorted in this category. Interest income from bank deposits, lottery awards, card games, gambling or other sports awards are included in this category. These incomes are attributed in Section 56(2) of the Income Tax Act and are chargeable for income tax.

DIFFERENT TYPES OF ITR FORMS

ITR-1 or SAHAJ

This form must be used by resident Indians who fall under the below-mentioned categories:

  • Income generated from a pension or salary
  • Income generated from a single house property. However, in case the losses have been brought forward from the previous year, exclusion is allowed.
  • In case an income of not more than Rs.5, 000 is generated from agriculture.
  • Income generated from other sources (excluding winning from lottery & race horses and excluding claim of loss under this head).

ITR-2

ITR-2 form must be used by individuals and Hindu Undivided Families (HUFs) not having income from Business or Profession AND who fall under the below-mentioned categories:

  • Income generated via a pension or from salary.
  • Income from house property.
  • Income that is generated from winning a lottery or horse races.
  • In case the individual is the Director of a company.
  • Agricultural income of the individual is more than Rs.5,000.
  • Income from capital gains.
  • In case any investments were present in equity shares that were unlisted during the financial year.
  • Income is generated from foreign income and foreign assets.

ITR-3

In case HUFs, Partnership Firms, and individuals who are Indian residents generate an income from a profession or business, they must opt for ITR-4. Individuals who have also chosen the presumptive income scheme according to Section 44AD, Section 44ADA, and Section 44AE of the Income Tax Act 1961, should also opt for this form.

ITR-4 (Sugam) cannot be filed by:

(a) Non Resident Firm
(b) HUF which is not ordinarily Resident
(c) Residents being/having

  • Director of a company
  • Held any unlisted share in 2018-19
  • Total income exceeding Rs. 50 lakhs
  • More than one house property
  • Foreign income/asset signing authority in a/c outside India
  • Brought forward loss or loss to be carried forward under any head of income
  • Assessible for the whole or part of Income on which tax was deducted in hands of person other than assessee.

ITR-5

Investment funds, Business trusts, Estate of insolvent, Estate of deceased, Artificial Juridical Person (AJP), Body of Individuals (BOIs), Associations of Persons (AOPs), LLPs, and firms must opt for ITR-5 form.

ITR-6

Applicable to any companies that are not claiming exemptions under Section 11, this form must be chosen. Companies that are filing returns under this section can only do it electronically.

DUE DATES FOR VARIOUS INCOME TAX RETURNS

Status Due Date
Due date for filing Income tax return for all assessees except :
1. Companies
2. Non-Companies whose books are required to be audited
3. Working partner of a firm whose accounts are required to be audited
31st July.
Due date for filing Income tax return for the following assessees:
1. Companies not requiring transfer pricing report
2. Non-Companies Whose books are required to be audited
30th September.
Due date for filing Income tax return for the following assessees:
1. Companies requiring transfer pricing report
30th November.

TYPES OF INCOME TAX ASSESSMENT

The Income Tax Act of 1961 mandates every person falling within the taxable bracket to file their income tax return before the due date. Post submission of the return, the Income Tax Department goes on to verify the accounts and assess the taxability. This process is known as an Income Tax Assessment. Assessments are classified into different kinds, which we will explore in brief in this article.

SUMMARY ASSESSMENT

This is also known as a preliminary assessment, where accounts are verified on a preliminary basis. Any adjustments made post-assessment shall be communicated to the assessee, either in written or electronic means. The assessee may respond if the assessee feels the need for it. If the assessee has not responded for a period of 30 days, the adjustments will be finalized.

Procedure for Summary Assessment

  • After correcting any errors, the tax payable would be calculated on the basis of adjusted income.
  • The assessee would be informed of any refundable or payable amount.
  • The assessee would also be intimated on certain adjustments, whether or not the same had any effect on the amount of tax to be paid.
  • In case of nil adjustments, the assessee would be acknowledged on the receipt of returns filed.

SCRUTINY ASSESSMENT

Scrutiny assessment is when the taxpayer’s claims, deductions, documents etc, based on the income tax return are verified thoroughly in order to authenticate the same.

Procedure of Scrutiny Assessment

  • If the assessing officer feels the need to verify the authenticity of the taxpayer, to clarify whether or not the taxpayer has committed any defaults in terms of manipulation of income stated; computation of excessive laws; or evasion of tax, the taxpayer may need to appear before the officer for the purpose of verification, and if required, submit the relevant documents or evidence relating to the query posed by the assessing officer.
  • The assessing officer needs to submit a notice informing the assessee on the details of the assessment, and the notice must be served within a period of 6 months from the end of the financial year in which the assessee has filed the returns.
  • The taxpayer or his representative need to appear before the assessing officer to answer the necessary queries or produce the relevant documents.
  • After determining the tax through the above processes, the taxpayer goes on to specify any amendments on tax payable on the basis of corrections, mistakes etc.

BEST JUDGEMENT ASSESSMENT

A best judgement assessment is conducted when the taxpayer fails to comply with any of the regulations like timely filing of returns, submission of necessary documents and so on. These assessments are done by the officer with the help of available knowledge and documents.

Procedure of Assessment

  • A show-cause notice will be given to the assessee explaining the need to conduct a best judgement assessment.
  • If the officer is not satisfied with the arguments or response of the taxpayer, he would go on with the best judgement assessment.
  • Finally, after giving the assessee an opportunity to hear, the officer will conduct the assessment based on the best of the knowledge and documents available to him, and determine the tax payable accordingly.

INCOME ESCAPING ASSESSMENT

As the name suggests, income-escaping assessment is carried out if the assessing officer feels that any income was being left out from assessment in any assessment year.

Procedure of Assessment

  • The taxpayer must be given an opportunity to hear, post which notice is issued briefing the taxpayer on the assessment to be conducted and its need.
  • The assessing officer will then go on to compute the incomes which he feels escaped assessment. He may also re-compute the loss or depreciation allowance or the likes of it, for the particular assessment year.
  • The taxpayer would be notified of the results computed and the implications thereto.
 
     
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