FAQs on Income and Computation of Income:
Updated: Apr 10, 2020
What is Income Tax?
It is a direct tax levied by the Government of India on the income of every person. The provisions governing the Income-tax are covered in the Income-tax Act, 1961.
Who is supposed to pay Income Tax?
Income-tax is to be paid by every person. The term 'person' as defined under the Income-tax Act under section 2(3) covers in its ambit natural as well as artificial persons.
For the purpose of charging Income-tax, the term 'person' includes Individual, Hindu Undivided Families [HUFs], Association of Persons [AOPs], Body of individuals [BOIs], Firms, LLPs, Companies, Local authority and any artificial juridical person not covered under any of the above.
Thus, from the definition of the term 'person' it can be observed that, apart from a natural person, i.e., an individual, any sort of artificial entity will also be liable to pay Income-tax.
What is Income?
Under the Income-tax Law, the word income has a very broad and inclusive meaning. In case of a salaried person all that is received from an employer in cash, kind or as a facility is considered as an income. For a businessman his net profit will constitute his income. Income may also flow from investments in the form of Interest, Dividend, Commission, etc. Further, income may be earned on account of sale of capital assets like building, gold, etc.
Income shall be computed as per relevant provision of Income-tax Act, 1961 which lays down detail condition for computation of income chargeable to tax under various heads of income
What is exempted income and taxable income?
An exempt income is not charged to tax, i.e., Income-tax Law specifically grants exemption from tax to such income. Incomes which are chargeable to tax are called as taxable incomes.
What is revenue and capital receipts?
Revenue receipts are recurring in nature like salary, profit from business, interest income, etc. Capital receipts are generally of isolated nature like receipt on account of sale of residential building, personal jewellery, etc.
Is agriculture income is taxable income?
Agricultural income is not taxable. However, if you have non-agricultural income too, then while calculating tax on non-agricultural income, your agricultural income will be taken into account for rate purpose.
Do i need to maintain records of income?
For every source of income you have to maintain proof of earning and the records specified under the Income-tax Act. In case no such records are prescribed, you should maintain reasonable records with which you can support the claim of income. Even if you have only agricultural income, you are advised to maintain some proof of your agricultural earnings/expenses.
What does profession mean for Income Tax?
Profession means exploitation of one’s skills and knowledge independently. Profession includes vocation. Some examples are legal, medical, engineering, architecture, accountancy, technical consultancy, interior decoration, artists, writers, etc.
What are the heads of Income?
Income-tax Act has classified the income of a taxpayer under five different heads of income, viz.:
Income from house property
Profits and gains of business or profession
Income from other sources
What is gross total income?
Total income of a taxpayer from all the heads of income (as discussed in previous FAQ) is referred to as Gross Total Income.
Limit of income below which I need not pay income tax?
At this moment (i.e., for the financial year 2019-20) Individual, HUF, AOP, and BOI having income below Rs. 2,50,000 need not pay any Income-tax. In respect of resident individuals of the age of 60 years and above but below 80 years, the basic exemption limit is Rs. 3,00,000 and in respect of resident individuals of 80 years and above, the limit is Rs. 5,00,000. For other categories of persons such as co-operative societies, firms, companies and local authorities, no basic exemption limit exists and, hence, they have to pay taxes on their entire income chargeable to tax.
What is rebate under section 87A and who can claim it?
An individual who is resident in India and whose total income does not exceed Rs. 5,00,000 is entitled to claim rebate under section 87A. Rebate under section 87A is available in the form of deduction from the tax liability. Rebate under section 87A will be lower of 100% of income-tax liability or Rs. 12,500. In other words, if the tax liability exceeds Rs. 12,500, rebate will be available to the extent of Rs. 12,500 only and no rebate will be available if the total income (i.e. taxable income) exceeds Rs. 5,00,000.
Can a partnership firm or HUF claim rebate under section 87A?
Rebate under section 87A is available only to an individual, hence, any person other than an individual cannot claim rebate under section 87A. Partnership firm or HUF cannot claim rebate under section 87A.
Can a Non resident claim rebate under section 87A?
Rebate under section 87A is available only to an individual who is resident in India, hence, non-residents cannot claim rebate under section 87A.
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