Accounts Notes: What is Income tax

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 your Financial Year is from 1st April-2007 to 31st March-2008, then Assessment year for Income Tax purpose is year ending on 31st March, 2009 (1st April 2008 to 31st March 2009). 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.
• If you are carrying on 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.
You have to quote your PAN on:
• 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 chargeable to income tax
• NRIs
• Central Government, State Government and Consular Officers, in transactions where they are the payers.
• Application for allotment of PAN can be submitted in form No. 49A.
6. What are the types of income chargeable to Income tax?
1. Salary Income
2. House Property Income
3. Income from business or profession
4. Income from sale of capital assets
5. 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.
(1) Resident and ordinarily resident (ROR)
(2) Resident but not ordinary resident (RNOR)
(3) 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)
* Threshold limit for resident women assessees below 65 years of age and resident individuals of 65 years and above to be further increased to Rs. 1,35,000/- and Rs. 1,85,000/- respectively.
• Plus surcharge @ 10% applicable if total income exceeds Rs. 10,00,000/
• Education Cess @ 2% is payable on tax plus surcharge
However if you are a company or a partnership firm you will have to pay tax on all income earned. Till 31st March 2003, "not ordinarily resident" was defined as a person who has not been resident in India in 9 out of 10 preceding previous years or he has not during the 7 preceding previous years been in India for a period of, or periods amounting in all to, 730 days or more.
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
FAQs on Income Tax II - Payment & Return filing
Posted By - Mr. C.S. Sudheer- On-15/01/09

1. How and where can I pay income tax?
Tax can be paid by way of cash, cheque or draft in any authorised national banks, in the prescribed challan. The challan can be obtained from Income tax Offices.
2. What do you mean by Income Tax Return filing?
Income Tax Return is a statutory return to be filed by assessee with Income Tax Department stating the total income earned & tax paid/payable by him during the previous financial year.
3. Is it compulsory to file a return of income when there is loss?
If a person has sustained a loss in the previous year and wishes to carry forward the loss to the subsequent year he should furnish a return of loss in the prescribed form before the due date.
4. Do I have to pay tax on all the money earned?
No, if you are an individual or HUF, you do not have to pay tax till you reach a specified exemption limit; once you cross that limit tax have to be paid as per following rates, slab wise:
For F.Y. 2008-09
Income Rate (%)
Up to 150000* NIL
150000 to 300000 10
300000 to 500000 20
Above 500000 30
* Threshold limit for resident women assessees below 65 years of age and resident individuals of 65 years and above to be further increased to Rs. 1,35,000/- and Rs. 1,95,000/- respectively.
• Plus surcharge @ 10% applicable if total income exceeds Rs. 10,00,000/
• Education Cess @ 2% is payable on tax plus surcharge
However if you are a company or a partnership firm you will have to pay tax on all income earned.
Proposed under Budget 2008, is as follows:
For A.Y. 2009-10 and For F.Y. 2008-09
Income Rate (%)
Up to 150000 NIL
150001 to 300000 10
300001 to 500000 20
Above 500000 30
Threshold limit for resident women assessees below 65 years of age and resident individuals of 65 years and above to be further increased to Rs. 1,80,000/- and Rs. 2,25,000/- respectively. Surcharge @ 10% applicable if total income exceeds Rs. 10, 00,000/-. Education Cess @ 2% leviable on tax plus surcharge.
5. Do I have to file a return even if my income is lower than the exemption limit? What is 1/7 criterion?
If you are Individual or HUF, then Yes, if you fulfils any one of the following conditions at any time during the previous year:
1. Ownership/lease of a motor vehicle.
2. Occupation of any category or categories of immovable property as may be specified by the board by notification whether by way of ownership or tenancy or otherwise.
3. Incurred expenditure on himself or any other person on travel to a foreign country other than Bangladesh, Bhutan, Maldives, Nepal, Pakistan or Sri Lanka (not being a travel to Saudi Arabia for Hajj or travel to China on pilgrimage to Kailash Mansarovar).
4. Subscription of a cellular telephone (not being a wireless in local loop telephone).
5. Holder of a credit card (not being an add-on card or not being a Kisan credit card, issued by a bank or an institution).
6. Member of a club where entrance fees charged is Rs 25,000 or more.
7. Expenditure of Rs 50,000 or more during the previous year towards consumption of electricity.
However, the government has specified that the above provision is not applicable in the case of a Non-Resident Indian (NRI).
Also if you are at least 65 years of old and not engaged in any business /profession, then you may not file return even when you fulfill conditions 2 or 4 above.
6. There are various returns available on Income Tax Departments site, which one do I need to file?
Class of Assessees Category Form
Individuals, HUF, Firms etc. (except companies and charitable assessees) All cases Form No. 2D or Saral form
One by Seven scheme Form No. 2C
Business or Profession income Form No. 2
Non- business income Form No.3 or 3D
Non- business income, No Capital Gain, No agriculture income 3 or 2D or 2E (Naya Saral)
Non business income and total income less than Rs 2 lakhs Form No. 2A
Charitable assesses All cases Form No 3A
Company except charitable assesses All cases Form No 1
Search cases All cases Form No 2B
7. What are the due dates for filing returns for various assesses?
Category Due date
For four categories namely:
A. Companies
B. All auditable cases
C. Working partner of auditable firms,
D. Persons covered other than 1/7 scheme, 31st October
In any other case 31st July
8. What is E-filing of return?
The Electronic Furnishing of Return of Income Scheme was introduced in 2004. Under this scheme, eligible assessees can file their returns of income electronically through authorised persons to act as e-return intermediaries on or before the due date.
The intermediaries digitalise the data of such returns and transmit the same electronically to the e-filing server of Income Tax Department under their digital signatures.
9. Who are eligible to file e-return?
Any assessee except an Association of persons or Body of Individual, who has been allotted a permanent account number (PAN) and who is assessed or is assessable to tax in any of the sixty cities, which are presently on Income Tax network is eligible to file his return of income under this scheme.
10. What do you mean by 'belated return'?
If the return is not furnished within the time prescribed or within the time permitted under a notice issued, the person can furnish the return of any previous year at any time before the end of one year from the end of the relevant assessment year, or before the completion of the assessment year.
For e.g. Return is due on October 31, 2008 for the Assessment Year 2008-09. However, for some reason, if the person does not file his return by October 31, 2008, he can file belated return on or before 31st March 2010.
11. What are the consequences of filing belated return?
A penalty of up to Rs 5,000 is required to be paid if the tax man picks up your paper for assessment. In addition, a penal interest @ 1% per month would be charged for default in tax payments.
12. What is the penalty?
WHEN speaking of belated filing of returns, the tax payer is ought to be in either of the following two situations.
• He or she has paid all his taxes but failed to file the returns on the due date for genuine reasons.
• He or she has not only failed to file the returns but also failed to pay his taxes on the due date
In the first case, since the assessee has cleared all his dues to the government, no penalty or interest shall be charged; provided the returns is filed by the end of the assessment year. Thus, in our example, no penalty or interest shall be levied from the assessee if the returns are filed on or before March 31, 2008.
However, if the returns is not filed within this stipulated time period (till March 31, 2008) and the assessee's income is picked up for assessment, the taxman can impose a penal charge of up to Rs 5,000 under Section 271F of the Income-Tax Act in spite of the fact that a belated returns can be filed up to one year from the end of the assessment year or as in our example by March 31, 2009.
However, if the assessee belongs to the second category of people, who have failed to deposit the tax dues with the government before the due date, interest @ 1% per month or part of the month (simple interest) shall be levied on the amount of net tax due from him under section 234A of the Income-Tax Act from the date immediately following the due date till the date of filing of returns. Thus, if the return is filed, say on December 31, 2008, i.e., five months after the due date, the interest shall be levied at the outstanding tax amount @ 1% pm for five months.
Other consequences
• A PERSON filing the returns after the due date, irrespective of the fact whether the tax has been paid or not, will not be allowed to carry forward the losses if any incurred by him during the financial year.
• The losses that cannot be carried forward are the business losses, capital losses and losses arising from the business of owning and maintaining race horses. If the return is filed on the due date, the assessee is allowed to file a revised return if he wants to make any amendments to the original returns so filed.
However, this privilege is not available to a person filing belated returns. In case of refund of tax, the assessee is eligible to receive interest on such refund from the taxman. This interest is paid for the period starting from the date of filing of returns till the date of issue of refund order. Thus, in case of a belated return, the assessee is bound to lose out on interest on refund for the period for which the return is delayed. While tax payers can undoubtedly file belated returns, it is and has always been advisable to file returns within time. So, while you may have missed the bus this time round, make sure you catch up on time from next year.
13. What is Advance Tax?
Advance tax means the advance tax payable in accordance with the provisions of Chapter XVII-C. Tax shall be payable in advance during any financial year in respect of the total income of the assessee which would be chargeable to tax.
Advance tax shall be payable if the tax payable is Rs. 5000 or more.
Advance Tax Obligation (If tax payable exceeds Rs. 5,000)
Due Date of Installment payable on or before Amt. Payable as a % of Tax
For Cos.* For Other Assessees
15th June 15% ¿
15th September 30% 30%
15th December 30% 30%
15th March Balance Balance
*MAT also subject to Advance Tax. Refer Circular No. 13 of 2001, [252 ITR (St) 52]
Advance Tax Obligation (In respect of Fringe Benefit Tax payable)
Advance Tax Obligation (If tax payable exceeds Rs. 5,000)
Due Date of Installment payable on or before Amt. Payable as a % of Tax
For Cos.* For Other Assessees
15th June 15% ¿
15th September 30% 30%
15th December 30% 30%
15th March Balance Balance
*MAT also subject to Advance Tax. Refer Circular No. 13 of 2001, [252 ITR (St) 52]
Advance Tax Obligation (In respect of Fringe Benefit Tax payable)
Fringe Benefit Tax payable for quarter ended Due Date of Installment payable on or before Amt. Payable as a % of Fringe Benefit Tax payable for the quarter
June 15th July 100%
September 15th October 100%
December 15th January 100%
March 15th March 100%