UNIT I

Basis Concept

Q1) What is income?

A1) While the Income Tax Act does not define the term income, Section 2 (24) of the Act describes the various receipts contained under the income range.

Q2) What is agricultural income?

A2) Agricultural income is rent or income in cash or in kind derived from the land, which is used for agricultural purposes and the land must be located in India. Income from agriculture should be produced by the cultivator or the beneficiary of the spot rent of its agricultural products, which is suitable for incorporating it into the market.

The income should be obtained from the sale by the cultivator or the rental recipient of its products produced or received by him and cannot carry out any process other than the process of adapting it to the market.

Q3) What is casual income?

A3) Casual income means an income which is casual in nature, i.e., which is unplanned, uncertain, accidental, sudden income which occurs just by chance and the person cannot depend upon it to produce income in future.

Example: Winning from lotteries, gambling, betting, etc.,

Apart from these, any incomes which are unanticipated and non-recurring in nature are called Casual incomes.

Similarly, capital gains, receipt from a business or an occupation and one-time benefits like bonus given to employees are not casual incomes.

Q4) What is assessment year?

A4) Assessment Year is the year in which one file income tax returns of the year prior to it (i.e. Financial Year). It is the year in which the income that one has earned in the financial year that is just ended is evaluated.

E.g. for Financial Year 2014-15 the Assessment Year will be 2015-16.

Q5) What is previous year?

A5) As per the Income Tax law the income earned in current year is taxable in the next year. The year in which income is earned is known as the previous year.

In layman language the current financial year is known as the previous year. The financial year starts from 1st April and end on 31st March of the next year.

For Instance, for the salary income earned from 1 April 2017 - 31st March 2018 .The previous year would be 2017-18.

All the assessee’s are required to follow the financial year( April 1 to March 31) as previous year for all types of incomes. In case, of a newly set-up business/profession or first job then your first previous year may be less than 12 months. Though from subsequent years your previous year will always be your financial year.

Q6)  What is Gross Total Income?

A6) Gross total income (GTI) is the sum of incomes computed under the five heads of income i.e. salary, house property, business or profession, capital gain and other sources after applying clubbing provisions and making adjustments of set off and carry forward of losses.

GTI = Salary Income + House Property Income + Business or Profession Income + Capital Gains + Other Sources Income + Clubbing of Income - Set-off of Losses

Q7) What are the types of Gross Total income (GTI)?

A7) Gross total income is to be categorized in 2 parts

Other GTI includes:

Q8) Who is a Person under Income Tax Act?

A8) Person [Section 2(31)] : Definition under Tax-

Person includes :

Q9) What is Tax Evasion?

A9) Tax evasion is illegal action in which a individual or company to avoid paying tax liability. It involves hiding or false income, without proof of inflating deductions, not reporting cash transaction etc. Tax evasion is serious offense comes under criminal charges and substantial penalties.

Rooting for taxes is never an easy thing because most people question that concept of giving away part of their earning to a government but the fact is that taxes are an important source of income for the government. This is the money that is invested in various development projects that are meant to improve the company's situation. But the country has been facing a massive problem with tax evasion. People who should be paying taxes have found ways not to pay them and, as a result, it may be said that the income of the country has been suffering. So let's take a look at what are the ways in which people are avoiding taxes and what are the penalties for it.

Q10) Differentiate between Tax Evasion, Tax Avoidance and Tax Planning.

A10) Difference between Tax Evasion, Tax Avoidance and Tax Planning -

 1. Nature: Tax planning and Tax avoidance is legal whereas Tax evasion is illegal

2. Attributes: Tax planning is moral. Tax avoidance is immoral. Tax evasion is illegal and objectionable.

3. Motive:  Tax planning is the method of saving tax .However tax avoidance is dodging of tax. Tax evasion is an act of concealing tax.

4. Consequences: Tax avoidance leads to the deferment of tax liability. Tax evasion leads to penalty or imprisonment.

5. Objective: The objective of Tax avoidance is to reduce tax liability by applying the script of law whereas Tax evasion is done to reduce tax liability by exercising unfair means. Tax planning is done to reduce the liability of tax by applying the provision and moral of law.

6. Permissible: Tax planning and Tax avoidance are permissible whereas Tax evasion is not permissible.

Tax liability of an individual can be reduced through 3 different methods- Tax Planning, Tax avoidance and Tax evasion. All the methods are different and interchangeable.

Tax planning and Tax avoidance are the legal ways to reduce tax liabilities but Tax avoidance is not advisable as it manipulates the law for one’s own benefit whereas tax planning is an ideal method.