Basics of Income tax
What is Income tax?
Income tax is an annual levy or tax on the income earned by a particular person during a financial year. It is charged and collected by the Central Government. Income tax is a direct tax which is charged to and collected from the same person unlike GST (Goods and Services Tax) which is charged on the consumer of goods and services but is collected from the provider or supplier of such goods and services. The income tax is charged, assessed and collected as per law of Income tax Act, 1961.
Heads of Income
- Income from Salaries
- Income from House Property
- Income from profits and gains of business and profession
- Income from Capital gains
- Income from other sources
What is Gross Total Income?
What is Total Income?
What is meant by Previous Year and Assessment Year?
Financial Year: The financial year starts from 1st April of a year and ends on 31st March of the next year.
Previous Year: The financial year in which income is earned is called as the previous year (P.Y.).
Assessment Year: Such income is brought to tax in the next financial year and this next financial year is called as the Assessment Year (A.Y.).
Suppose Mrs. ABC is employed as a salaried employee in Financial Year 2018-19 and has received the salary of Rs. 10 lacs during that year, and then Financial Year 2018-19 is a Previous Year. Her salary income will be taxed in the next year i.e. 2019-20 and this next year is called as Assessment Year.
What is meant by an Assessee?
Permanent Account Number (PAN)
- quoting it in all correspondence, returns, statement, etc., sent by the person to the income-tax authorities, and
- quoting it at the time of entering into certain specified financial transactions.
Know More About PAN:
A ‘Permanent Account Number’ (‘PAN’) is a ten-digit alphanumerical number which is issued by the Income-tax Department. It is required by every person for the purpose of (i) quoting it in all correspondence, returns, statement, etc., sent by the person to the income-tax authorities, and (ii) quoting it at the time of entering into certain specified financial transactions.
Every person whose total income during any previous year is more than the limit prescribed for taxable income is required to apply for a PAN.
An apparently wrong notion that is prevailing is that, if a person obtains a PAN, he must statutorily file a return of income. There is no such requirement under the Act. In fact, it is specifically provided in the Income tax Act that the persons can obtain a PAN in advance, so as to meet any eventuality that may arise in the future when they want to or may have to enter into specified financial transactions for which quoting PAN is mandatory.
The PAN card may come in handy at any time and possession of that card well in advance is thus a necessity. This apart, this card serves as an ‘identity card’ even for other purposes, especially for senior citizens, like railway reservations or airline reservations.
A person can have only one PAN under the new series.
Persons who are not resident in India and those who have agricultural income as the only source of income are not required to obtain PAN.
The application for PAN is made in Form No. 49A.
You need to mention your PAN in following transactions:
- Transactions in immovable property of more than Rs. 500,000/-
- Transactions in vehicles except TWO wheelers
- Fixed Deposits or Time Deposits in Banks more than Rs. 50000/-
- Post Office Savings Bank Deposits
- Opening of any bank account in any bank
- New Telephone Connections
- Hotel Bills more than Rs.25000/-
- Share transactions more than Rs.100,000/-
- Payments to Banks more than Rs. 50000/-
- Cash payments for foreign travel more than Rs.250000/-
- Application for issue of a credit card
- Purchase of Mutual Funds more than Rs. 50000/-
- Acquisition of shares in a company of more than Rs.50000/-
- Acquisition of Debentures of more than Rs. 50000/-
- Acquisition of RBI Bonds of more than Rs.50000/-
- Payment of LIFE Insurance Premium of more than Rs.50000/-
- Purchase of bullion or jewellery of more than Rs.500000/-