Some Basic Concepts of Taxation : section 4 questions @MDU Semester Exams

1. Assessee
An assessee is any person or entity liable to pay taxes under the Income Tax Act. This includes individuals, Hindu Undivided Families (HUFs), companies, firms, and other entities with taxable income. Assessees can be categorized as:

  • Individual Assessee
  • Hindu Undivided Family (HUF)
  • Company
  • Firm
  • Association of Persons (AOP)
  • Body of Individuals (BOI)
  • Others liable to tax

2. Charge of Wealth Tax
Wealth tax was levied on the net wealth of individuals, HUFs, and companies under the Wealth Tax Act. It applied to the total value of specified assets, such as property and gold, exceeding the exempt limit. Abolished by the Finance Act, 2015, no wealth tax is levied thereafter.

3. Income from Salary
Income from salary includes monetary benefits received by an individual under an employer-employee relationship. It encompasses basic pay, allowances, perquisites, and benefits. Income is taxed as per applicable slabs under the Income Tax Act.

4. Capital Gains
Capital gains are profits from the sale of a capital asset, categorized as:

  • Short-Term Capital Gains (STCG): Holding period is less than a specified time.
  • Long-Term Capital Gains (LTCG): Holding period exceeds the specified time.

Tax rates vary, with exemptions available under Sections 54 and 10(38).

5. Agricultural Income
Agricultural income is exempt under the Income Tax Act. It includes earnings from cultivation, crops, livestock, or land used for agricultural purposes. However, it may be considered for determining tax rates on non-agricultural income if the total income exceeds the basic exemption limit.

6. Capital Receipt
Capital receipts represent non-taxable income or assets received, often related to the capital structure, such as sale proceeds of a capital asset. These are generally exempt unless subject to specific provisions, like capital gains tax.

7. Revised Return
Under Section 139(5), taxpayers can file a revised return to correct errors in the original return. It must be filed within one year of the relevant assessment year or before completion of assessment.

8. Belated Returns
A belated return is filed after the due date specified under the Income Tax Act. Penalties may apply, and certain benefits like the carry-forward of losses may be disallowed. These returns must be filed within one year from the end of the relevant assessment year.

9. Residential Status of a Company
A company is deemed a resident if its Place of Effective Management (POEM) is in India during the financial year. A resident company is taxed on its worldwide income, while a non-resident is taxed only on India-sourced income.

10. Double Taxation Relief
Double taxation relief avoids taxing the same income in two countries. Taxpayers can claim relief under Double Taxation Avoidance Agreements (DTAAs) through:

  • Tax Credit: Offset foreign tax paid against Indian tax liability.
  • Exemption: Exclude foreign income from Indian taxation.

11. Assessment Year
The assessment year is the year following the financial year in which income is assessed and taxed. For income earned in FY 2023-24, the assessment year is 2024-25.

12. Interest on Refunds
Under Section 244A, taxpayers who have overpaid taxes are entitled to interest on refunds. It is calculated from the date of filing the return until the refund is issued, excluding delays caused by the taxpayer.

13. Rebate of Income Tax
Under Section 87A, individual taxpayers with income below a specified threshold are eligible for a rebate that directly reduces their tax liability. For example, a rebate of up to ₹12,500 is applicable within defined income limits.

14. Appeal to Commissioner
Taxpayers aggrieved by an Assessing Officer's order can file an appeal with the Commissioner of Income Tax (Appeals) within 30 days. The Commissioner can modify, confirm, or cancel the assessment. Dissatisfied taxpayers can appeal to higher authorities like ITAT.

15. Return Defective
A return is considered defective under Section 139(9) if it lacks necessary details, signatures, or follows an incorrect format. Tax authorities may issue a notice to rectify defects within a specified time. Non-compliance may render the return invalid.

16. Compulsory Best Judgment Assessment
Under Section 144, if a taxpayer fails to file a return or provides incomplete details, the Assessing Officer estimates income based on available information. Taxpayers can challenge this assessment through appeals.

17. Income Tax Commissioner
The Income Tax Commissioner administers the Income Tax Act within their jurisdiction. Responsibilities include:

  • Supervising assessments and tax collection.
  • Addressing grievances.
  • Reviewing appeals and ensuring compliance with tax laws.

18. Assessment Procedure
The assessment process verifies a taxpayer's income, deductions, and tax liabilities. It begins with filing the return and includes scrutiny by the Income Tax Officer (ITO) to identify discrepancies. Notices may be issued, and the process concludes upon tax settlement.

19. TDS (Tax Deducted at Source)
TDS is a mechanism where taxes are deducted at the source of income, such as salary or interest, by the payer and deposited directly with the government. It ensures tax collection at the time of earning income.

20. Refund of Excess Tax Paid
If taxes paid exceed the liability, taxpayers can claim a refund by filing a return of income. The refund includes interest under Section 244A.

21. Power of Income Tax Commissioner
The Commissioner of Income Tax has powers under the Income Tax Act to:

  • Conduct surveys and investigations.
  • Issue notices.
  • Rectify errors and revise orders.

22. PAN (Permanent Account Number)
PAN is a unique 10-character alphanumeric identifier issued by the Income Tax Department. It is mandatory for financial transactions, filing returns, and claiming tax credits.

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