Income Tax : Common Questions
What is Income Tax ?
It is a tax levied by the Government of India on the income of every person. The provisions governing the Income tax Law are given in the Income-tax Act, 1961.
What is the period for charging the income Tax ?
Income tax is levied on the annual income of a person. The year under the Income-tax Law is the period starting from 1st April and ending on 31st March of next calendar year. The Income-tax Law classifies the year as (1) Previous year, and (2) Assessment year.
The year in which income is earned is called as previous year and the year in which the income is charged to tax is called as assessment year.
e.g., Income earned during the period of 1st April, 2015 to 31st March, 2016 is treated as income of the previous year 2015-16. Income of the previous year 2015-16 will be charged to tax in the next year, i.e., in the assessment year 2016-17.
What is the minimum slab rate above which Income Tax is required to be paid ?
Check Income tax rates as per Finance Act 2015 for FY 2015-16 (AY 2016-17)
Who are liable to pay Income-tax?
For the purpose of charging Income-tax, the term ‘person’ includes Individual, Hindu Undivided Families [HUFs], Association of Persons [AOPs], Body of individuals [BOIs], Firms, LLPs, Companies, Local authority and any artificial juridical person not covered under any of the above.
Thus, from the definition of the term ‘person’ it can be observed that, apart from a natural person, i.e., an individual, any sort of artificial entity will also be liable to pay Income-tax.
How will I know how much Income tax I have to pay?
The rates of Income-tax and corporate taxes are available in the Finance Act passed by the Parliament every year. You can also check your tax liability by using the free online tax calculator available at www.incometaxindia.gov.in
When do I have to pay the Income Tax on my income?
Generally, the tax on income crystallizes only on completion of the previous year. However, for ease of collection and regularity of flow of funds to the Government for its various activities, the Income-tax Act has laid down the provisions for payment of taxes in advance during the year of earning itself. It is called as ‘pay as you earn’ concept. Taxes may also be collected on your behalf during the previous year itself through TDS and TCS mode. If at the time of filing of return you find that you have some balance tax to be paid after taking into account the credit of your advance tax, TDS & TCS, the shortfall is to be deposited as Self Assessment Tax.
How to deposit Self Assessment Tax or Advance tax to the credit of Government?
Self – Assessment Tax or Advance Tax is to be deposited to the credit of Government by using the challan prescribed in this behalf, i.e., ITNS 280. The Challan can be downloaded from www.incometaxindia.gov.in Tax can be paid in the designated banks through two modes, viz., physical mode, i.e., cash/cheque or e-payment mode.
How is advance tax calculated and paid under income tax act ?
Advance tax is to be calculated on the basis of expected tax liability of the year. Advance tax is to be paid in instalments as given below:
| Status | By 15th June | By 15th Sept | 15th Dec | 15th March |
| Corporate | 15% | 45% | 75% | 100% |
| Non-Corporate | Nil | 30% | 60% | 100% |
Any tax paid till 31st March is treated as advance tax.
The deposit of advance tax is made through challan ITNS 280 by ticking the relevant column, i.e., advance tax.
What is tax on regular assessment and how is it paid under income tax act?
Under the Income tax Act, every person has the responsibility to correctly compute and pay his due taxes. Where the Department finds that there has been understatement of income and resultant tax due, it takes measures to compute the actual tax amount that ought to have been paid. This demand raised on the person is called as Tax on regular assessment. The tax on regular assessment has to be paid within 30 days of receipt of the notice of demand.
What are the precautions that I should take while filling-up the income tax payment challan?
- Head of payment, i.e., Corporation Tax/Income-tax (other than companies)
- Amount and mode of payment of tax
- Type of payment [i.e., Advance tax/Self assessment tax/Tax on regular assessment/Tax on Dividend/Tax on distributed Income to Unit holders/Surtax]
- Assessment year
- The unique identification number called as PAN [Permanent Account Number] allotted by the IT Department.
Do I need to insist on some proof of payment from the Banker to whom I have submitted the challan?
The filled-up taxpayer’s counterfoil will be stamped and returned to you by the bank. Please ensure that the bank’s stamp contains BSR Code [Bankers Serial Number Code], Challan Identification Number [CIN], and the date of payment. In case of e-payment a computer generated copy will be issued.
How can I know that the Government has received the amount deposited by me as taxes in the bank?
Form 26AS will also disclose the credit of TDS/TCS in your account.
What is exempt income and taxable income under Income Tax Act ?
E.g., Dividend income from an Indian company is granted specific exemption and, hence, the same is not liable to tax in the hands of the shareholders. However, dividend from a foreign company is taxable.
I am an agriculturist. Is my income taxable under Income Tax Act?
Agricultural income is not taxable. However, if you have non-agricultural income too, then while calculating tax on non-agricultural income, your agricultural income will be taken into account for rate purpose. For meaning of Agricultural Income refer section 2(IA) of the Income-tax Act.
Even if you have only agricultural income, you are advised to maintain some proof of your agricultural earnings/expenses.
Do I need to maintain any records or proof of earnings under Income tax act?
For every source of income you have to maintain proof of earning and the records specified under the Income-tax Act. In case no such records are prescribed, you should maintain reasonable records with which you can support the claim of income.
If I win a lottery or prize money in a competition, am I required to pay Income tax on it?
Yes, such winnings are liable to flat rate of tax at 30% without any basic exemption limit. In such a case the payer of prize money will generally deduct tax at source (i.e., TDS) from the winnings and will pay you only the balance amount.
Profession means exploitation of one’s skills and knowledge independently. Profession includes vocation. Some examples are legal, medical, engineering, architecture, accountancy, technical consultancy, interior decoration, artists, writers, etc.
The Income tax Act does not prescribe any specific books of account for a person engaged in business or in non-specified profession. However, such a person is expected to keep and maintain such book of account and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of the Act.
For companies the books of account are prescribed under the Companies Act. Further, the Institute of Chartered Accountants of India has prescribed various Accounting Standards and Guidelines that are required to be followed by the business entities As regards the maintenance of books of account by a professional, who is engaged in specified profession has to maintain certain prescribed books of account, if the annual receipts from the profession exceed Rs. 1,50,000 in all the three years immediately preceding the previous year (in case of newly set up profession, his annual receipts in the profession for that year are likely to exceed Rs. 1,50,000).
Specified profession covers profession of legal, medical, engineering, architectural, accountancy, company secretary, technical consultancy, interior decoration, authorised representative, film artist or information technology.
For more details on the provisions relating to maintenance of books of account you may refer provisions of section 44AA read with Rule 6F of the Income-tax Rules, 1962.
Where should the books of account of business be kept under income tax act and for how long?