Important concepts of income tax

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IMPORTANT CONCEPTS OF INCOME TAX
Prepared by
Dr.R.SANGEETHA
ASSISTANT PROFESSOR
PG & RESEARCH DEPARTMENT OF COMMERCE WITH INTERNATIONAL BUSINESS
HINDUSTHAN COLLEGE OF ARTS AND SCIENCE, COIMBATORE

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Important Concepts of Income Tax
Assessment Year
Previous Year
Assessee
Person
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Assessment Year [section 2(9)]
“Assessment year” means the period of 12 months commencing on the 1st day
of April every year.
In India, the Govt. maintains its accounts for a period of 12months i.e. from 1st
April to 31st March every year. As such it is known as financial year. The
income tax department has also selected same year for its assessment
procedure.
The Assessment year is the financial year of the Govt. of India during which
income of a person relating to the relevant previous year is assessed to tax.
Every person who is liable to pay tax under this Act files return of income by
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Assessment Year [section 2(9)]….. Contd….
Prescribed dates. These returns are processed by the
Income tax department officials and officers. This
processing is called assessment. Under this income
returned by the assessee is checked and verified.
Tax is calculated and compared with the amount paid
and assessment order is issued. The year in which whole
of this process is undertaken is called assessment year.
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Difference between Assessment year and Financial Year
 From an income tax perspective, FY is the year in which you earn an income.
AY is the year following the financial year in which you have to evaluate the
previous year’s income and pay taxes on it.
 For instance, if your financial year is from 1 April 2019 to 31 March 2020,
then it is known as FY 2019-20. The assessment year for the money earned
during this period would begin after the financial year ends – that is from 1
April 2020 to 31 March 2021. Hence, the assessment year would be AY 2020-
21.
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Previous Year [section 2(34) r. w. Section 3]
As per S.2(34) of Income Tax Act, 1961, unless the context otherwise requires,
the term ‘previous year’ means the previous year as defined in section 3. In
view of above, we need to visit Section 3 of Income Tax Act, 1961, which
defines the term previous year as under:
“For the purposes of this Act, “previous year” means the financial year
immediately preceding the assessment year.
Provided that, in the case of a business or profession newly set up, or a source
of income newly coming into existence, in the said financial year, the previous
year shall be the period beginning with the date of setting up of the business
or profession or, as the case may be, the date on which the source of income
newly comes into existence and ending with the said financial year.”
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Previous Year…… contd…
Therefore, basically the Previous Year indicates the year/ period prior to
another. Under Income Tax, the returns are filed by assessees after end of the
year/ period during which earnings are made and that period is called previous
year/ financial year. However, when such earnings are subjected to
assessment/ review by ITO in the subsequent period/ year, the same is called
assessment year/ period.
For example, previous year corresponding to assessment year 2020-21 means
the preceding financial year, i.e. 2019-20 (1 Apr. 2019 to 31 Mar. 2020),
however the previous year may begin from a later date in the case of new
business/ source of income. In case a new business is set-up on 1 Oct. 2019,
then previous year will be 1 Oct. 2019 to 31 Mar. 2020, which is a part of
financial year 2019-20.
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Assessee [section 2(7)]
"assessee" means a person by whom income-tax or any
other sum of money is payable under this Act, and
includes:
a) every person in respect of whom any proceeding
under this Act has been taken for the assessment of
his income or of the loss sustained by him or of the
amount of refund due to him;
b) every person who is deemed to be an assessee
under any provision of this Act;
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c) every person who is deemed to be an assessee-in-
default under any provision of this Act;
The above definition divides various types of assessees
into three categories:
I. Ordinary assessee. It includes
(i) Any person against whom some proceedings under
this act are going on. It is immaterial whether any tax or
other amount is payable by him or not;
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(ii) Any person who has sustained loss and has filed
return of loss u/s 139(3);
(iii) Any person by whom some amount of interest, tax
or penalty is payable under this Act; or
(iv) Any person who is entitled to refund of tax under
this act.
II. Representative assessee or deemed assessee.
A person may not be liable only for his own income or
loss but also on the income or loss of other persons e.g.
guardian of minor or lunatic, agent of a non-resident etc.
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In such case the persons responsible for the assessment
of income of such persons are called representative
assessees. Such persons is deemed to be an assessee.
1. In case of a deceased person who dies after writing
his will the executors of the property of deceased are
deemed as assessees.
2. In case a person dies intestate (without writing his
will) his eldest son or other legal heirs are deemed as
assessee.
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3. In case of a minor, lunatic or idiot having income taxable
under Income Tax Act, their guardian is deemed as assessee.
4. In case of a non-resident having income in India, any person
acting on his behalf is deemed as assessee.
III. Assessee-in-default
A person is deemed to be an assessee-in-default if he fails to fulfil
his statutory obligations. In case of an employer paying salary or a
person who is paying interest, it is their duty to deduct tax at
source and deposit the amount of tax so collected in Government
treasury. If such a person fails to deduct tax at source or deducts
tax but does not deposit it in the treasury, he is known as
assessee-in-default.
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Person [Section 2(31)]
Person includes
(i) An Individual
(ii) A Hindu Undivided Family
(iii) A company
(iv) A Firm
(v) An association of persons or a body of individuals, whether
incorporated or not,
(vi) A local authority and
(vii) Every artificial juridical person not falling within any of the
preceding sub-clauses.
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