Overview of basic Concepts

1. Assessee

Definition: An "assessee" is any person who is liable to pay taxes or any other sum of money under the Income Tax Act. It also includes individuals who are liable for filing returns, persons against whom proceedings have been initiated, or individuals who are deemed responsible for complying with tax laws.

Types of Assessees: The term encompasses individuals, Hindu Undivided Families (HUFs), companies, firms, associations of persons (AOPs), bodies of individuals (BOIs), local authorities, and any artificial juridical person.

2. Person

Definition: Under the Income Tax Act, a "person" is broadly defined and includes several entities. A person can be an individual, a Hindu Undivided Family (HUF), a company, a firm, an association of persons (AOP), a body of individuals (BOI), a local authority, or any artificial juridical person.

Significance: The definition of "person" is crucial because income tax is levied on the income of a person. Therefore, understanding what constitutes a "person" helps in identifying who is liable to pay tax.

3. Assessment Year

Definition: The "Assessment Year" (AY) is the year in which income earned during the previous year is assessed to tax. It is the year immediately following the previous year.

Example: If income is earned in the year 2023-24 (Previous Year), the Assessment Year would be 2024-25. During the Assessment Year, taxpayers file their income tax returns for the income earned in the Previous Year.

4. Previous Year

Definition: The "Previous Year" is the financial year immediately preceding the Assessment Year, in which the income is earned. For most taxpayers, it runs from April 1st to March 31st.

Example: If you are filing a tax return in AY 2024-25, the income you report would be from the Previous Year, i.e., 2023-24.

5. Agricultural Income

Definition: "Agricultural Income" refers to income derived from land situated in India and used for agricultural purposes. It includes income from the cultivation of crops, the rent or revenue derived from agricultural land, and income from farmhouses under certain conditions.

Tax Treatment: Agricultural income is exempt from tax under Section 10(1) of the Income Tax Act. However, it is considered for determining the tax rate applicable to other income if the total agricultural income exceeds ₹5,000.

6. Income

Definition: "Income" under the Income Tax Act is a broad term that includes profits and gains, dividends, voluntary contributions received by a charitable trust, capital gains, rent from property, salaries, and income from any source whatsoever, barring exemptions.

Components: Income can be categorized under various heads such as Salaries, House Property, Business or Profession, Capital Gains, and Other Sources.

7. Gross Total Income (GTI)

Definition: Gross Total Income (GTI) is the aggregate of income under all heads (Salaries, House Property, Business or Profession, Capital Gains, and Other Sources) before applying any deductions under Chapter VI-A (like deductions under Section 80C, 80D, etc.).

Calculation: GTI = Total of incomes under all heads before deductions.

8. Total Income

Definition: Total Income is the income on which tax is computed after allowing for all permissible deductions under Chapter VI-A from the Gross Total Income.

Example: If your Gross Total Income is ₹10,00,000 and you claim deductions of ₹1,50,000 under Section 80C, your Total Income would be ₹8,50,000, and tax will be calculated on this amount.

9. Average Rate of Tax

Definition: The Average Rate of Tax is the rate obtained by dividing the total tax payable by the total income. It represents the percentage of total income that goes towards paying tax.

Calculation: Average Rate of Tax = (Total Tax Payable / Total Income) * 100

Significance: This rate gives an overall picture of the tax burden on the taxpayer and is used in certain situations, like in the context of relief under double taxation agreements.