The government of India imposes an income tax on taxable income of individuals, HUFs (Hindu Undivided Families), Companies, Firms, Co-operative societies, trusts, etc. Levy of tax on different people depends on his/her taxable income. In India levy of Income Tax is governed by the Indian Income Tax Act, 1961.
Generally people are not interested in understanding the complicated process & techniques of Tax calculation; they always like to have a short cut for everything. After understanding your requirements we have prepared this article to make you equipped to face the uncertainties in Tax related issues.
1. Who has to pay Income tax?
Any individual, corporate, firm, society or any judicial legal entity having income earned & received in India will be liable to pay Income tax to the Income tax Department of India.
2. Who is an assessee in Income Tax?
Assessee is a person by whom Income tax is payable under Income Tax Act, 1961 of India.
3. What is Assessment year in Income Tax?
Let's say Financial Year is from 1st April-2010 to 31st March-2011, then Assessment year for Income Tax purpose is year 1st April 2011 to 31st March 2012). In this case Financial Year would be called previous year.
4. What is a PAN (Permanent Account Number)?
The permanent account number is allotted by the assessing officer to any person for the purpose of identification. It's a Unique 10 digits number for e.g. KKJMN6994P.
5. Do I have to apply for a permanent account number (PAN)? How do I apply?
If you fall under any of the below mentioned categories, you have to apply for PAN in Form 49A:
- If your total income in the previous year exceeds maximum amount not chargeable to tax. (i.e.; Rs.160000, 190000 & 240000 for general, ladies & senior citizens respectively.)
- If you are carrying any business or profession, whose total sales, turnover or gross receipts, are or is likely to exceed Rs 500,000.
- If you are assessable as charitable trust.
When do you need a PAN
- Income tax return
- Any correspondence with Income Tax Authority
- Challans for payment of direct taxes
- Application for installation of a telephone connection (including a cellular telephone)
- Application for opening a bank account
- Application for opening DMAT account
- Documents pertaining to sale or purchase of a motor vehicle (other than two wheelers) & immovable property valued at Rs 500,000 or more
- Documents pertaining to a time deposit/fixed deposits exceeding Rs 50,000 with a bank
- Documents pertaining to deposits exceeding Rs 50,000 in any account with a Post-Office Savings Bank
- Documents pertaining to a contract of a value exceeding Rs 1 million (Rs 10 lakhs) for sale or purchase of securities (shares, debentures)
- At the time of purchase of Mutual fund units.
- Payment to hotels and restaurants against their bills for an amount exceeding Rs. 25,000 at any one time
However following people may not apply for PAN
- Who have agricultural income and are not in receipt of any other income
- NRIs
- Central Government, State Government and Consular Officers, in transactions where they are the payers.
6. What are the types of income chargeable to Income tax?
- Salary Income
- House Property Income
- Income from business or profession
- Income from sale of capital assets
- Other income
7. What is residential status under Income Tax Act?
In India, as in many other countries, the charge of income tax and the scope of taxable income vary with residential status of the assessee.
There are three categories of taxable entities viz.
- Resident and ordinarily resident (ROR)
- Resident but not ordinary resident (RNOR)
- Non-residents (NR)
The law prescribes two alternative criterions to decide the residential status of an assessee. Both criterions relate to the physical presence of the taxpayer in India in the course of the previous year which would be the twelve months from April 1 to March 31.
A person is said to be "resident" in India in any previous year if he -
a) Is in India in that year for an aggregate period of 182 days or more; or
b) having within the four years preceding that year been in India for a period of 365 days or more, is in India in that year for an aggregate period of 60 days or more.
The above provisions are applicable to all individuals irrespective of their nationality. However, as a special concession for Indian citizens and foreign citizens of Indian origin, the period of 60 days referred to in Clause (b) above, will be extended to 182 days in two cases:
(i) Where an Indian citizen leaves India in any year for employment outside India; and
(ii) Where an Indian citizen or a foreign citizen of Indian origin (NRI), who is outside India, comes on a visit to India.
In the above context, an individual visiting India several times during the relevant "previous year" should note that judicial authorities in India have held that both the days of entry and exit are counted while calculating the number of days stay in India, irrespective of however short the time spent in India on those two days may be.
A "non-resident" is merely defined as a person who is not a "resident" i.e. one who does not satisfy either of the two prescribed tests of residence.
An individual, who is defined as Resident in a given financial year is said to be "not ordinarily resident" in any previous year if he has been a non-resident in India 9 out of the 10 preceding previous years or he has during the 7 preceding previous years been in India for a period of, or periods amounting in all to, 729 days or less.
Conditions | ROR | RNOR | NR |
In India >= 182 days in FY | Yes | Yes | No |
NR in India in 9 out of 10 preceding FYs | No | Yes | NA |
In India for <=729 days in preceding 7 FYs | No | Yes | NA |
In India >= 60 days in FY and >= 365 days in preceding 4 FYs | NA | NA | No |
(FY = Current Financial Year) | |||
8. Is it compulsory to maintain books of accounts?
Yes, IF you are carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other notified profession. And Yes, IF you are carrying on business or profession (other than professions mentioned earlier) and IF the income from business or profession exceeds Rs.1,20,000/- or the total sales, turnover or gross receipts in the business or profession exceeds Rs. 10 lakhs in any one of the three years immediately preceding the previous year.
9. Is it compulsory to get the books audited?
(i) Every person carrying on business shall get his accounts audited if the total sales, turnover or gross receipts in business exceed Rs. 40 lakhs in the previous year.
(ii) Every person carrying on profession shall get his accounts audited if his gross receipts exceed Rs. 10 lakhs in the previous year.