Know your Income Tax!!

The ICAI has taken upon itself to create awareness among the citizens about finance and taxation. As a member of this august body I thought of doing my bit to create awareness among some persons.

The present day income tax Act dates back to 1961. This Act is amended every year by the Finance Act which takes effect from the 1 April of the same year. The budget is presented in the parliament on the 1 day of February every year and the proposals are implemented from the 1 April next following. Changes in the limits, exemptions, etc are provided for in the Finance Act.

Following terms used in the Act are important and to be known by the general public.

Assessment year: is a period of 12 months commencing on 1 April of every year and ending with 31 march of the next year. In a few days we will be embarking upon Assessment year 21/22 (from 01 April 21 to 31 March 2022).

Previous year: is the period of 12 months ending immediately before the commencement of the assessment year. For the assessment year 21/22 previous year is the year from 01 April 2020 to 31 March 21. All the income earned in this year is charged to tax in the assessment year 21/22.

Assessee is a person by whom tax or any other amount is payable under the Act. All the persons who are required to pay any amount under the Income Tax Act are assesses.

Assessment: is the process where the taxable income of an assessee is reasonably estimated by the Income Tax authorities.

Return of Income: Is a statement to be prepared in the applicable format and submitted to the income tax department each year by the assessees.

Taxes: are the amounts determined by the Act to be payable by the assessees. Taxes can be pre assessment taxes and post assessment taxes.

Pre assessment Taxes: These taxes are payable before the assessment is done. There are three types of pre assessment taxes.

a) TDS Tax deducted at source is required of the making certain payment such as rents, commissions, salaries, professional charges, etc at the specified rates at the time of actual payment or when the amount is recognized in the books of account

b) Advance Tax is payable in four installments before the 15th day of june, September, December and March. The assesse has to estimate the overall tax liability considering the tax slabs as applicable, business trends, etc and pay taxes as they earn the income. By the end of the year on 31 march, 90% of the tax payable is to be paid on the net tax determined payable at the end of the year.

c) Self-assessment tax: At the time of filing the return the assesse should make an assessment by himself/herself and pay off the total taxes.

After the return is filed, the department carries out the assessment and if they are satisfied, the return is accepted without seeking any adjustments or explanations. They may seek some further information at times. After the information is furnished, the assessment is completed and may be an additional tax determined payable. This is a post assessment tax.

There would be interests and penalties payable for not complying with the dates and amounts. Contact your tax advisor for the amounts of tax payable for each quarter.