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capital assets also subject to tax under certain circumstance. The winnings from lotteries, cross-word puzzles, races, card games etc. which do not arise from any definite source and do not have the element of regularity have also been specifically clarified to be ‘income’ under the Act. It is not the gross receipts but only the net receipts arrived at after deducting the related expenses incurred in connection with earning such receipts that are made the basis of taxation. Income tax is charged under the Indian Income Tax Act, 1961, It is an annual tax on income levied by the Central Government. Tax is charged in respect of the income of the financial year (known as previous year) in the next financial year (known as assessment year) at the rates fixed for such assessment year in the Finance Act passed each year by the Parliament. The tax is charged in respect of the income of the previous year and the same is chargeable in the assessment year. “Previous year” means the financial year i.e. the period beginning on 1st April and ending on 31st March. The return of income for this period is due in the next financial year called the Assessment Year in which the proceedings for assessment commence either by filing of return voluntarily by the income earner or by the Income Tax Department initiating action for calling the return. The income earned in the period beginning on 1st April 1995 and ending on 31st March 1996 will, for instance, be assessable earliest in the next financial year i.e. the year 1996-97. The Act categorises the income of a person under different heads and provides for the manner of computation of taxable income of each head, which are: • Salaries • Income from house property PRAVASI TODAY | SEPTEMBER 2009
• Profits and gains of business or profession • Capital gains; and • Income from other sources The total of the income under each head as worked out in accordance with the provisions of the Act is termed as ‘gross total income.’ The Act provides for certain deduction from such gross total income. Deductions are allowed for promotion of charitable activities, promoting exports and other activities resulting in the inflow of foreign exchange, for development of industries and for other socioeconomic objectives. Incentives for promotion of savings are provided in the form of deduction in tax liability by grant of rebate at certain percentage on certain savings made out of taxable income. After reducing the ‘gross total income’ by the amount of incentives deductions mentioned in the preceding paragraph, the balance is the amount on which tax is to be calculated at the rates prescribed by the relevant Finance Act. This amount is termed as total income and is the base for taxation. For certain categories of taxpayers, a basic exemption limit is provided and tax is calculated only on that part of the total income which is in excess of such exemption limit. If such ‘total income’ is below the basic exemption limit, no tax is chargeable. For instance, under the Finance Act, 2000, no tax is payable by an individual if his total income is below Rs. 50,000/-.
SUBRATA BISWAS
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2009