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