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- What is Income Tax?
It is a tax imposed by the Government of India on any body who earns income in India. This tax is levied on the strength of an Act called Income tax Act which was passed by the Parliament of India.
- What do you mean by income earned in India?
Income earned in India is not limited to income earned within the geographical limits or boundaries of the country. Certain incomes are also deemed to have been earned in India although they may have been earned outside the country.
- Who administers the Income-Tax Act?
The job of monitoring the Income-tax collection by the government is entrusted to a Department called Income-Tax. This department functions under the Department of Revenue, Ministry of Finance, Government of India.
- What is the period for which a persons income is taken into account for purpose of Income tax?
Income earned in the twelve months contained in the period from 1st April to 31st March (commonly called Financial Year [FY]) is taken into account for purposes of calculating Income Tax. Under the income tax Act this period is called a Previous year.
- What is an Assessment Year?
It is the twelve-month period 1st April to 31st March immediately following the previous year [refer answer-4]. In the Assessment year a person files his return for the income earned in the previous year. For example for FY:2006-07 the AY is 2007-08.
- Who is supposed to pay Income Tax?
Any Individual or group of Individual or artificial bodies who/which have earned income during the previous years are required to pay Income tax on it. The IT Act recognizes the earners of income under seven  categories. Each category is called a Status. These are Individuals, Hindu Undivided Family [HUF], Association of Persons [AOP], Body of individuals [BOI], Firms, Companies, Local authority, Artificial juridical person.
When Companies pay taxes under the Income tax Act it is called Corporate tax.
7. Is Income tax Act applicable only to residents?
No, The Income tax Act applies to all persons who earn income in India. Whether they are resident or non-resident.
8. Who is a resident?
If an individual stays in India for 182 days or more in a year, he is treated as resident in that year regardless of his citizenship. If the stay is less than 182 days he is a non-resident.
9. How can I know whether a company is resident or non-resident?
A company is considered as resident if it is incorporated under the Indian Companies Act. A foreign company can also become a resident if the control and management of its affairs is done entirely in India during the previous year.
10. How is resident/ non-resident status relevant for levy of income tax?
In case of resident individuals and companies, their global income is taxable in India. However non-residents have to pay tax only on the income earned in India or from a source/activity in India.
- I am an Indian scientist, who had gone abroad on a government project. Should my return of income include income earned/received abroad?
It depends on your residential status. If you are a resident all incomes earned globally are taxable. Therefore the same needs to be included in the return. However if any tax is paid on that income in the foreign country, you will get credit for the same.
B. Taxable Income
- What does the Income Tax Department consider as income?
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 income. For a businessman, his net profits will constitute income. Income may also flow from investments in the form of Interest, Dividend, and Commission etc. Infect the Income Tax Act does not differentiate between legal and illegal income for purpose of taxation. Under the Act, all incomes earned by persons are classified into 5 different heads, such as:
- Income from Salary
- Income from House property
- Income from Business or Profession
- Income from capital gains
- Income from other sources
- Are all receipts considered as income?
Receipts can be classified into two kinds. A) Revenue receipt B) Capital receipt.
The general rule under the Income tax Act is that, all revenue receipt are taxable unless a receipt is specifically exempted and all capital receipts are exempt from taxation unless there is a provision to tax it. Gifts and loans etc are in the nature of capital receipts not attracting tax.
- What are revenue and capital receipts?
In a simple language, all that one derives from a source is called revenue receipt. For ex. Salary from employment, Rent from property, Interest or Divided from Investments, Profits from business. When an income is earned on account of transacting the source itself, it is called Capital receipt. For ex. Sale of land and building, business, investment etc.
- Is income tax levied on gifts received by a person?
Gift exceeding Rs 25,000 is taxable unless it is received from
(i) any person who is a relative or
(ii) on occasion of marriage or
(iii) under will or by inheritance or
in contemplation of death of the payer
16. I own shares of various Indian companies and receive dividends. Is it taxable?
No. The dividend declared by Indian companies is not taxable in the hands of the share holders because tax on distributed profits have already been borne by the company.
17. I am a religious preacher and earn money from preaching. Do I have to pay tax and file return?
- Can I claim deduction for my personal and household expenditure in calculating my income or profit?
19. Most of my income is given away in charity and I am left with just enough to meet my personal requirement. What will be considered as my income?
What is done after the income is earned does not determine its taxation. However charitable contribution to approved institutions will give you the benefit of certain deductions from taxable income.
20. My daughter stays in USA. She owns a house in India and has let it out. She has asked tenants to pay rent to me so that I can a lead decent life. She has not received any rent. Is she still liable to tax? What if she transfers the house to me?
Your daughter is the owner of the house and therefore she is liable to pay tax even though you receive the rent. If the house is transferred, then you would become the owner and you will have to pay tax on the rental income.
21. My children living abroad send me Rs.20000/- per month for my maintenance. Would this be considered as my income?
- Is there any limit of income below which I need not pay taxes?
At the moment individual, HUF, AOP, and BOI having income below rupees one lakh need not pay any income tax. For other categories [persons] such as co-operatives societies, firms, companies and local authorities no such exempted limits exists, so they have to pay taxes on their entire income. In cases of senior citizens aged above 65 years and women the exempted limit for the financial year 2007-08 are rupees one lakh ninety thousand and one lakh forty thousand respectively.
- I am an agriculturist. Is my income taxable?
Your agricultural income is not taxable per se. However, if you have any other source of income like income from investments, property etc, while calculating tax on them, your agricultural income will be taken into account, so that you pay tax at a higher rate on that other income.
24. What is agricultural income?
To consider an activity as agriculture the basic operation such as tilling, sowing, irrigating & harvesting should have been carried out. Thereafter what is sold in the market should be the primary product harvested. Receipt from such sale is considered as agricultural receipt. If however some further processing or modification were done to the harvested product to enhance its marketable value then such enhanced value would be considered as business income.
- Is income from animal husbandry considered as agricultural income?
- Do I have to maintain any records or proof of earnings?
For every source of income you have to maintain proof of earning and the records specified under the IT Act. In case, no such records have been laid down, you should maintain reasonable level of records with which you can support the claim of income.
- As an agriculturist, am I required to maintain any proof of earning and expenditure incurred?
Even if you have only agricultural income you are advised to maintain some proof of your agricultural earnings.
- I win a lottery or prize money in a competition. Am I required to pay taxes on it?
C. Tax on Income
- How does the Government collect Income Tax?
Taxes are collected by three means: a) voluntary payment by persons into various designated Banks. For example Advance Tax and Self Assessment Tax b) Taxes deducted at source [TDS] on your behalf from the payments receivable by you. c) Taxes collected at source [TCS] on your behalf at the time of spending. It is the constitutional obligation of every person earning income to compute his income and pay taxes correctly.
- How will I know how much Income tax I have to pay?
The rates of income tax and corporate taxes are available in the Finance bill [commonly called budget] passed by Parliament every year.
- Does every person have to keenly follow the annual Finance bills?
You need not do so. You can take professional help or the help of Public Relation Officer [PRO] in the local Income Tax Department office. You may also take assistance from Tax Return Preparers [TRP]
- When do I have to pay the taxes on my income?
Generally the tax on income crystallizes only on completion of the previous year. However for ease of collection and regularity of flow of funds to the Government for its various activities, the Income tax Act has laid down payment of taxes in advance during the year of earning itself. Taxes may also be collected on your behalf during the previous year itself through TDS and TCS. If at the time of filing of return you find that you have some balance tax to be paid after taking into account your advance tax, TDS & TCS, the short fall is to be deposited as Self Assessment Tax.
- What is the procedure for depositing tax?
A form called Challen available in the Income Tax department, in banks and on the IT department web site should be filled up and deposited in the bank along with the money. Taxes can also be paid on-line.
- In the challan there are terms like Income tax on companies & Income tax other than companies. What do they mean?
The tax to be paid by the companies on their income is called corporate tax and in the challan it is mentioned as Income tax on Companies. Tax paid by non-corporates is called Income tax and in the challan it is identified as Income tax other than Companies.
- How is advance tax calculated and paid?
It is paid in installments. The amount payable is to be calculated in the following manner:
|Status||By 15th June||By 15th Sept||15th Dec||15th March|
The deposit of advance tax is made through challan by ticking the relevant column.
- What is regular tax and how is it paid?
Under the Income tax Act every person has the responsibility to correctly compute and pay his due taxes. Where the Department finds that there has been understatement of income and tax due, it takes measures to compute the actual tax amount that ought to have been paid. This demand raised on the person is called Regular Tax. The regular tax has to be paid within 30 days of receipt of the notice of demand.
- What are the precautions that I should take while filling up the tax payment challan?
i. Head of payment eg. Corporation Tax/Income Tax
ii. Amount and mode of payment of tax
iii. Type of payment [Advance tax/Self assessment/Regular/Tax on Dividend]
iv. Assessment year
v. The unique identification number called PAN [Permanent Account Number] allotted by the IT Department. (Since PAN related services have been outsourced, for further details on PAN please see the departmental website http://www.incometaxindia.gov.in/ or www.nsdl_tin.com)
- Do I need to insist on some proof of payment from the Banker to whom I have submitted the challan?
The filled up taxpayers counter foil will be stamped and returned to you by the bank. Please ensure that the bank stamp contains BSR[Bankers Serial number code], Challan Identification Number [CIN], and the date of payment.
- How can I know that the Government has received the amount deposited by me as taxes in the bank?
The NSDL website [http://www.tin-nsdl.com] provides online services called Challan Status Enquiry. You can also see your tax pass book, an online tax credit viewing facility in the same website.
- What is the procedure to be followed to view my Tax passbook/Tax statement?
You must first register your PAN by logging into the online service called view tax credit in the NSDL website [http://www.tin-nsdl.com]. Thereafter your PAN registration must be authorized by visiting the nearest TIN [Tax Information Network] facilitation center of NSDL or getting their representative to call upon you. These are paid services.
- What should I do if my tax payment particulars are not found against my name in your website?
For payments deposited by you into the bank you will have to contact your bankers if the credit has not been given even after three days. In case of TDS or TCS you will have to contact the concerned deductor /collector after the due date for filing the quarterly TDS/TCS return by them is over.
- Is my responsibility under the Income tax Act over once taxes are paid?
No. You are thereafter responsible for ensuring that the tax credits are available in your tax passbook, TDS/TCS certificates are received by you and that full particulars of income and tax payment along with necessary proof is submitted to the income tax department in the form of Return before the due date.
43. What can I do to reduce my tax?
The tax can be reduced by making investment in approved schemes and also by making donations to approved charitable institutions.
D. Return of income
44. What is a return of income?
It is a prescribed form through which the particulars of income earned by a person in a financial year and taxes paid on such income is communicated to the Income tax department after the end of the Financial year. Different forms are prescribed for filing of returns for different Status and Nature of income.
45. From where can I get a return form?
The Public Relation Officer [PRO] can be contacted for this purpose. The form can also be downloaded from the site http://www.incometaxindia.gov.in/.
46. How can I know which form is applicable for my income?
You should choose a return form according to your status and nature of income from the following:
|For Individuals having Income from Salary/ Pension/ family pension & Interest|
|For Individuals and HUFs not having Income from Business or Profession|
|For Individuals/HUFs being partners in firms and not carrying out business or profession under any proprietorship|
|For individuals & HUFs having income from a proprietary business or profession|
|For firms, AOPs and BOIs|
|For Companies other than companies claiming exemption under section 11|
|For persons including companies required to furnish return under section 139(4A) or section 139(4B) or section 139(4C) or section 139(4D)|
|Return for Fringe Benefits|
|Where the data of the Return of Income/Fringe Benefits in Form ITR-1, ITR-2, ITR-3, ITR-4, ITR-5, ITR-6 & ITR-8 transmitted electronically without digital signature|
47. What documents are to be enclosed along with the return of income?
The new return form numbering 1 to 8 is annexure less. Hence no documents need to be attached.
- Where and how am I supposed to file my return?
A return is to be filed before your Assessing officer. It may even be sent by post or filed electronically. Nowadays returns are also being received at designated post offices.
- Who is an Assessing officer?
He/She is an officer of the Income tax department who has been given jurisdiction over a particular geographical territory or class of persons. You can find out from the PRO or from the Departmental websitehttp://www.incometaxindia.gov.in/ as to your jurisdiction.
- How is a return filed electronically?
Companies and firms are compulsorily required to file their return electronically, while for others it is still optional. For electronic filing of return you have to log on to the Departmental websitehttp://www.incometaxindia.gov.in/ and upload the information of income and taxes in the prescribed form. If you have digital signature the same can be appended and there would be no need to file a paper return. In case you do not have a digital signature you will be required to file a paper return quoting the provisional acknowledgement number received on completion of uploading.
- I am going out of India. Who will file my income tax return for this period?
You can authorize any person by way of a Power of Attorney to file your return. A copy of the Power of Attorney should be enclosed with the return.
- Will I be put to any disadvantage by filing my return?
No. On the contrary by not filing your return in spite of having taxable income, you will be laying yourself open to the penal and prosecution provisions under the Income-tax Act.
- What are the benefits of filing my return of income?
Filing of return is your constitutional duty and earns for you the dignity of consciously contributing to the development of the nation. This apart, your IT returns validate your credit worthiness before financial institutions and make it possible for you to access many financial benefits such as bank credits etc.
- Is it necessary to file return of income when I do not have any positive income?
If you have sustained a loss in the financial year, which you propose to carry forward to the subsequent year for adjustment against its positive income, you must make a claim of loss by filing your return before the due date.
- What are the due dates for filing returns of income/loss?
The due dates are as follows:
|Companies & their Directors||31st October|
|Other business entities, other than companies, if their accounts are auditable & their working partners||31st October|
|In all other case||31st July|
56. If I fail to furnish my return within the due date of filing, will I be fined or penalized?
Yes. This may take the form of interest if the return is not filed before the end of the assessment year. If the return is not filed even after the end of the assessment year, penalty may also be levied.
- Can a return be filed after the due date?
Yes. It may be furnished at any time before the expiry of two years from the end of the financial year in which the income was earned. For example, in case of income earned during FY 2006-07, the belated return can be filed before 31st March 2009.
- So far I have never paid any tax. If I file a return this year will the IT department ask me about my earlier years income?
It is never too late to start honoring your constitutional obligations for payment of tax. The department may ask you to file return of income for earlier years if it finds that you had taxable income in those years.
- If I have paid excess tax how and when will it be refunded?
The excess tax can be claimed as refund by filing your income tax return. It will be refunded by issue of cheque or by crediting to your bank account. The department has been making efforts to settle refund claims within four months from the month of filing return.
- If I have committed any mistake in my original return, am I permitted to file a corrected return?
Yes, provided the original return has been filed before the due date and provided the department has not completed assessment. However it is expected that the mistake in the original return is of a genuine and bona fide nature.
- How many times can I revise the return?
Theoretically a return can be revised any number of times before the expiry of one year from the end of the assessment year or before assessment by the department is completed; whichever event takes place earlier.
- Am I required to keep a copy of the return filed as proof and for how long?
Yes. Since legal proceedings under the income tax act can be initiated up to six years prior to the current financial year, you must maintain such documents at least for this period.
63. There are various deductions that have not been reflected in the Form 16 issued by my employer. Can I claim them in my return?
64. Why is return filing mandatory even though all my taxes and interests have been paid and there is no refund due to me?
Amounts paid as advance tax and withheld in the form of TDS or collected in the form of TCS will take the character of your tax due only on completion of self-assessment of your income. This self-assessment is intimated to the department by way of filing of return. Only then does the government acquire rights over the prepaid taxes as its own revenue. Filing of return is critical for this process and, hence, has been made mandatory. Failure will attract levy of penalty.
65. Am I liable for any criminal prosecution [arrest/imprisonment etc] if I dont file my income tax return even though my income is taxable?
Non-payment of tax attracts interests, penalty and prosecution. The prosecution can lead to rigorous imprisonment from 6 months to 7 years and fine.
- What are the benefits of obtaining a Permanent Account Number [PAN] and PAN Card?
A PAN number has been made compulsory for every transaction with the Income Tax department. It is also mandatory for numerous other financial transactions such as opening of bank accounts, availing institutional financial credits, purchase of high-end consumer item, foreign travel, transaction of immovable properties, dealing in securities etc. A PAN card is a valuable means of photo identification accepted by all government and non-government institutions in the country.
- I have lost my PAN card but remember my number. Do I necessarily need to get a fresh card?
With your PAN you can continue to transact with the Income Tax department. However, in respect of other agencies you may encounter constraints without a PAN card since it doubles as a photo identity card.
- I have been allotted two PANs. Which number should I use?
You may retain any one of the numbers and surrender the other through a letter addressed to your jurisdictional Assessing Officer.
- If I do not surrender the additional PAN number, is there any problem?
Yes. It is illegal to have two PANs and the penalty for such offence is Rs.10,000/-
- By mistake I have been using different PANs for different purpose like one for my demat account and another for filing my Income Tax return and payment of taxes. How do I set this right?
It is advisable to retain only one PAN, preferably the one used for Income Tax purpose and surrender the other number immediately. The institutions where the latter number has been quoted should be informed of the correct PAN.
71. Is it mandatory to file return of income after getting PAN?
No. Return is to be filed only if you have taxable income.
F. Salary Income
72. What is considered as Salary income?
Whatever is received by an employee from an employer in cash, kind or as a facility [perquisite] is considered as Salary.
73. What is meant by an employer-employee relationship?
If a person has the right/power to hire and fire another, then he is an employer of the latter.
74. What are allowances? Are all allowances taxable?
Allowances are fixed amounts, apart from salary, which are paid by an employer for the purpose of meeting some particular requirements of the employee. There are generally three types of allowances for the purpose of income tax- taxable, fully exempted and partially exempted.
- I am always on tour and my employer gives me substantial daily allowance, most of which is saved. Will this saving be treated as income?
- My employer reimburses all my expenses on grocery and childrens education. Would this be considered as income?
Yes. These are in the nature of perquisite.
- During the year, I had worked with three different employers and none of them deducted any tax from salary paid to me. If all these amounts are clubbed, my income will exceed the minimum exemption limit. Do I have to pay taxes on my own?
Yes. You will have to pay self-assessment tax and file the return.
- Even if no taxes have been deducted from salary, is there any need for my employer to issue Form-16 to me?
Form-16 is a certificate of TDS and in your case it will not apply. However your employer must issue a salary statement.
79. Is pension income considered as salary?
Yes. However pension received from the United Nation is exempt.
80. Is Family pension considered as salary?
No. It is taxable under other sources.
81. If I am receiving my pension through a bank who will issue Form-16 or pension statement to me- the bank or my former employer?
82. Are retirement benefits such as PF and Gratuity taxable?
No. They are exempt subject to conditions and limits laid down in the Income Tax Act.
83. Are arrears of salary taxable?
Yes. However certain benefit of spread over of income to the years to which it relates can be availed for lower incidence of tax. This is called relief u/s 89(1) of Income-tax Act.
84. Can my employer consider relief u/s 89(1) for the purposes of calculating my tax liability?
85. My income from let out house property is negative. Can I ask my employer to consider this loss against my salary income while computing my tax liability?
86. Is leave encashment taxable as salary?
It is taxable if received while in service. Received as retirement benefit, however it is exempt subject to certain conditions.
87. Life insurance amount received on maturity along with bonus – is it taxable?
G. Income from House property
88. What do you mean by Income from House Property?
Unlike the other heads of income, Income from house property is a notional income based on a concept called Annual value. This is the value a property is expected to fetch if it is let out. It may be more than the actual rent being received if let out. If it is not let out the expected market/fair rent will be considered as annual value for the purpose of taxation. Property includes the building and the land surrounding it.
89. If a property is not a residential house, can its income still be considered as income from house property?
Yes, provided the property is not used for business purpose.
90. What are the conditions for taxing income from a property under this head?
The person should own the property.
- Can interest paid on hand loans taken from friends and relatives be claimed as deduction while calculating house property income?
- I have two houses. One is a farmhouse that I visit on weekends and the other is in the city that I use on weekdays. Is it correct to treat both these residences as self occupied?
No. You can claim any one as self occupied. Incomes from buildings situated in or near agricultural farm are considered exempt provided they are used for dwelling of the farm owner/cultivator or for related purposes of storage etc.
93. I own two houses both of which are occupied by my family and me. Is there any tax implication?
Yes. As already mentioned in the answer to Q.No: 87, income from house property is a notional income and only in respect of one residential unit, if self occupied, it will be considered as nil. In case of the other residential unit, marketable rental value will have to be offered for tax.
- My spouse and I are joint owners of a house constructed by availing housing loan separately. Are we both individually/separately entitled for deduction of the maximum interest payable of Rs.1.5 lakh?
No. The net taxable income from the property must be calculated first and then apportioned between the co-owners. In this process of calculation maximum interest payable of Rs.1.5 lakh can be considered only once.
- My spouse and I jointly own a house for construction of which both of us have invested equally out of independent sources. Can the rental income received be split between us and taxed in the individual hands?
- I have 5 separate let out properties. Should I calculate the house property income separately for each individual property or by clubbing all the rental receipts in one calculation?
The calculation will have to be made separately for the various properties.