Basics of the Income Tax Act
Taxes are government-imposed financial charges levied on earnings, commodities, services, activities, or transactions. Here are the basics that you should know about the Income Tax Act.
The word "tax" is derived from the Latin word "taxo." Taxation is the government's primary source of revenue, and it is used to benefit citizens through government policies, regulations, and practices.
The Indian tax system has evolved to meet the government's increasing financial needs. The system is also intended to assist the government in meeting its socioeconomic objectives.
Tax reform is an ongoing process that should be carried out regularly to assess the system for revamping and repairs. The Income Tax Act come into force from 1961.
What is income tax?
Tax is a mandatory financial charge imposed by the government on wages, goods, administrations, exercises, or exchanges. Taxes are the primary sources of revenue for the government, and they are used to benefit the country's general population through government strategies, arrangements, and practices.
Taxes are mentioned in ancient texts such as Manusmurti and the Kautilya Arthashastra. It was first implemented in India in 1860 to combat the 1857 financial crisis. As a result, the income tax act come into force from 1961.
Need for income tax in India
Income tax is a tax on an individual's or entity's earnings. The primary source of revenue for the government to carry out its functions is income tax. Government jobs include defence, law and order, and welfare and development in health, education, rural development, etc.
The government must also pay for its administration. These activities necessitate substantial public funds, which are raised through taxation.
Purpose of taxation
The revenue generated by tax collection is used to fund the development of roads, schools, and hospitals, market regulations, and legal systems, among other things.
Redistribution of resources from the richer to the poorer sections of society
Certain products are taxed to eliminate externalities, such as tobacco taxes to discourage smoking.
Assessment year and previous year as per the Act
According to Section 2(9) of the Income Tax Act of 1961, an assessment year is 12 months beginning on April 1 of each year.
The assessee must file the previous year's income tax return in the assessment year in the assessment year. According to Section 2(34) of the Income Tax Act of 1961, unless the context requires otherwise, the term "previous year" refers to the previous year as defined in Section 3.
According to Section 3 of the Act of 1961, the term "previous year" refers to the fiscal year immediately preceding the assessment year.
For example, if the assessment year 2018-19 begins on April 1, 2018, and ends on March 31, 2019, the previous year would be 2017-18.
Who is a person as per the Act?
Section 2(31) of the Act defines a person. The term 'person' encompasses –
An individual.
A Hindu Undivided Family.
A Company.
A Firm.
Persons or body of individuals’ association, whether incorporated or not;
A local authority
Assessee definition in income tax
An assessee definition in Income Tax is any individual who has earned income or incurred losses and must pay taxes on these to the government in a given assessment year.
Normal assessee
Assessee classifications
A person who is the subject of proceedings under the Income Tax Act, whether or not he owes any tax or other amount;
A person who has suffered loss and has filed a loss return under section 139(3);
A person who must pay an amount of interest, tax, or penalty under the Income Tax Act;
Any person who is entitled to a tax refund under this Act
Assessee representative
A person may not be liable for his income or loss, but he may be responsible for the income or loss of others, such as the agent of a non-resident, the guardian of a minor or a lunatic, etc.
Deemed assessee
In the case of a deceased person who died after making a will, the administrators of the deceased's property are considered assessees.
If a person dies intestate (without leaving a will), the deceased person's eldest son or other legal heirs are considered assessees.
If a minor, lunatic, or idiot has taxable income under the Income Tax Act, their guardian is considered an assessee.
If a non-resident has income in India, anyone acting on his behalf is considered an assessee.
Assessee-in-default
If a person fails to fulfil his statutory obligations, he is considered an assessee-in-default. If an employer pays a salary or a person pays interest, it is their responsibility to deduct TDS and deposit the amount of tax collected in the government treasury.
To conclude:
As discussed, tax is a mandatory charge levied by the government on a person. Income Tax Act provides several provisions for taxpayers based on their needs. The government has provided various forms to pay income tax, depending on whether a person is an individual, HUF, a company, an ordinary resident, a non-ordinary resident, or a non-resident person.