BASIC

CONCEPTS OF
INCOME TAX
 PERSON-SECTION 2(31)
Income-tax is charged in respect of the total income of the
previous year of every person.
Hence, it is important to know the definition of the word person.
As per section 2(31), Person includes :
1) Individual-An individual is a natural human being i.e. male,
female, minor or a person of sound or unsound mind.
2) Hindu Undivided family (HUF)- Under Income Tax Act, 1961
a Hindu Undivided Family (HUF) is treated as separate entity
for the purposes of assessment. It consists of all persons lineally
descended from a common ancestor and includes their wives
and unmarried daughters and also a stranger who has been
adopted by the family. Members of the HUF are called as co-
parceners which includes the head of the HUF who is called as
Karta.
3) Company-It include Domestic company, Foreign company,
company in which public are substantially interested. Section
2(17) defines the term company to mean :
i. any Indian company, or
ii. any body corporate incorporated by or under the laws of a
country outside India i.e. a foreign company, or
iii. any institution, association or body which is or was
assessable or was assessed as a company for any assessment
year under the Indian Income Tax Act, 1922 or which is or was
assessable or was assessed under this Act as a company for any
assessment year commencing on or before the 1st day of April,
1970, or
iv. any institution, association or body, whether incorporated or
not and whether Indian or non- Indian, which is declared by
general or special order of the CBDT to be a company only for
such assessment year or assessment years as may be specified
by the order of CBDT.
4) Firm - It includes a partnership firm whether registered or not and
shall include a Limited Liability Partnership as defined in the Limited
Liability Partnership Act, 2008.
5) Association of Person : Two or more persons join in for a common
purpose or common action to produce income, profits or gains.
6) Body of Individuals denote the status of persons who are assessable
in like manner and to the same extent as the beneficiaries individually.
7) Local authority- It means a municipal committee, district board,
body of port commissioners, or other authority legally entitled to or
entrusted by the Government with the control and management of a
Municipal or local fund.
8) Every artificial, juridical person, not falling within any of the above
categories- This is a residuary clause. If the assessee does not fall in
any of the first six categories, he is assessed under this clause.
Generally, a statutory corporation, deity or charitable institution or an
endowment for charitable or religious purposes falls under artificial
juridical person.
 ASSESSEE- SECTION 2(7)
Assessee includes any one of four categories of people-
1) First category- A person( as under Section 2(31) by whom
any tax or any other sum of money ( including interest and
penalty) is payable under the Act.
2) Second Category- A person in respect of whom any
proceeding under the Act has been taken this proceeding
includes- assessment of the amount of his income or of the
loss sustained by him, of the income of any other person in
respect of whom he is assessable, or the amount of refund
due to him or such other person
3)Third category- Every person who is deemed to be an
assessee
4) Fourth category- Every person who is deemed to be an
assessee in default under any provision of the Act.
 ASSESSMENT YEAR- 2(9)
Assessment year means the period of twelve months
commencing on 1st April every year.
Therefore, the period beginning on 1st April of one year
and ending on 31st March of the next year.
Income of previous year of an assessee is taxed during the
following assessment year at the rates prescribed by the
relevant Finance Act.
Eg: the income earned by ‘A’ during financial year 2019-
2020 (previous year) is assessed in the assessment year
2020-2021.
But there are some exceptions to this general rule of
assessment year
 EXCEPTIONS TO GENERAL
RULE
In the following situations, the Income of previous year of an
assessee is assessed in the previous year itself:
a. Income of Non-Resident from Shipping: [Section 172]- A non
resident who is carrying on a shipping business and earns
income in any port in India, shall be charged to tax before the
ship is allowed to leave Indian Port. Hence income is deemed
and computed at a presumptive rate of 7.5% of the amount of
the fare/freight charged by the non-resident ship from the
Indian port.
b. Income of persons leaving India either permanently or for
long duration: [Section 174]- When it appears to the Assessing
Officer (A.O.) that an individual may leave India and has no
intentions of returning back during an assessment year, then
the income is charged to tax during the same Assessment year.
c. Income of bodies formed for short duration: [Section
174A]- When it appears to the Assessing Officer (A.O.)
that any organization is formed for a particular event and
is likely to be dissolved during the current assessment
year.
d. Income of person trying to transfer his assets with a
view to avoid tax: [Section 175]- When it appears to the
Assessing Officer (A.O.) that during the current
assessment year any person is likely to charge, sell,
transfer, dispose of or otherwise part with any of his
assets to avoid payment of any liability under this Act,
the total income of such person for the period from the
expiry of the previous year to the date, when the
Assessing Officer commences proceedings under this
section is chargeable to tax in that assessment year.
e. Income of discontinued business: [Section 176]- Where
any business or profession is discontinued in any
assessment year, the income of the period from the expiry
of the previous year up to the date of such discontinuance
may, at the discretion of the Assessing Officer, be charged
to tax in that assessment year.
PREVIOUS YEAR-SECTION 2(34) AND SECTION 3

According to Section 2(34) ‘previous year’ means the

previous year as defined in Section 3.
Income tax is payable on the income which is earned
during the Previous Year and it is assessed in the
immediately succeeding financial year which is called an
Assessment Year.
All assesses are required to follow a uniform previous
year i.e. The Financial Year (1st April to 31st March) as
their Previous year. Although assessee may maintain
books of accounts on calendar year basis (1st January to
31st December) but his previous year for income tax
purposes shall be the Financial year.
Each financial year is both, a previous year as well as an
assessment year.
It is the previous year for the income earned during the
financial year and assessment year for the income earned
during the preceding previous year.
For example financial year 2019-20 is the previous year for
the income earned during the financial year 2019-20 and
assessment year for the income earned during the previous
year 2018-19.
In case of newly set up business or profession or a source of
income newly coming into existence, the first previous year
will be the period commencing from the date of setting up of
business/profession or as the case may be, the date on which
the source of income newly comes into existence and ending
on the immediately following March, 31.
 TOTAL INCOME- SECTION
2(45)

Total income is computed under the 5 heads of

income.
Income computed under each head of income is
aggregated and the aggregate income is called as the
Gross Total Income.
Certain deductions are allowed under Chapter VIA
and the balance income taxable after deductions is
called as Total Income.