FAQ Category: Income Tax

1. What is Income Tax?

Income tax is a tax which is charged on income of a person. Everyone who earns or gets an income in India beyond maximum amount not chargeable to tax is subject to income tax. Your income could be salary, pension or could be from a savings account or profits or gains from business or profession or capital gains or any other source of income.

2. Who is supposed to pay Income-tax?

Income-tax is to be paid by every person. The term ‘person’ as defined under the Income-tax Act covers in its ambit natural as well as artificial persons.

For the purpose of charging Income-tax, the term ‘person’ includes Individual, Hindu Undivided Families [HUFs], Association of Persons [AOPs], Body of individuals [BOIs], Firms, LLPs, Companies, Local authority and any artificial juridical person not covered under any of the above.

Thus, from the definition of the term ‘person’ it can be observed that, apart from a natural person, i.e., an individual, any sort of artificial entity will also be liable to pay Income-tax.

3. Who is an Assessee?

An Assessee is a person by whom any tax or any other sum of money is payable under the Act.

4. What is an Assessment year?

The assessment year (AY) is period of 12 months commencing on 1^st April every year. The year in which income is earned is the previous year and such income is taxable in the immediately following year which is the assessment year.

5. What is a Previous Year?

It is a Financial Year (FY) immediately preceding the assessment year. The year in which income is earned.

Example – Mr. A earned salary of Rs. 2,50,000 during the financial year 2023-24. In this case previous year would be P.Y. 2023-24 and assessment year would be A.Y. 2024-25.

6. What is Income?

It is very critical term as income tax is charged on the income of a person. Income ordinarily means any earnings. Definition of income under the Income Tax Act is broad to cover various transactions beyond typical earnings. Section 2(24) of the Act enumerates certain items, including those that cannot ordinarily be considered income but are treated statutorily.

7. How income is classified under the Income-tax Act?

As per Income-tax Act, income of a person is categorised into five heads of Income:

• Salaries (salary or pension)
• Income from house property (rental income)
• Profits and gains of business or profession
• Capital gains (income from sale of a capital asset such as mutual funds, shares, house property etc.)
• Income from other sources (residuary head which covers income such as interest on saving bank account/fixed deposits, winning from lottery, dividend etc.)

8. What is exempt income and taxable income?

An exempt income is not charged to tax, i.e., Income-tax Law specifically grants exemption from tax to such income. Income which is chargeable to tax are called as taxable income.

9. What is Gross Total Income?

Gross Total Income means the aggregate amount of taxable income computed under five heads of income, i.e., salaries, house property, business & profession, capital gains and other sources.

10. What are Deductions?

While computing the income tax, there are certain expenses, investments or income that are allowed to be deducted from the Gross Total Income, which is called deductions. These deductions are given in section 80C to 80U of the Income Tax Act.

11. What is Total Income?

After making deductions under section 80C to 80U from the gross total income, the amount left is known as Total Income. Income tax is computed on this income. Total income is rounded off to nearest multiples of ten rupees. Total Income is computed as follows:

1. How does the Government collect Income-tax?

Taxes are collected by the Government through three means:

• voluntary payment by taxpayers into various designated Banks. For example, Advance Tax and Self-Assessment Tax paid by the taxpayers,
• Taxes deducted at source [TDS] and
• Taxes collected at source [TCS].

It is the constitutional obligation of every person earning income to compute his income and pay taxes correctly.

2. What is self-assessment tax?

Self-Assessment Tax(SAT) means the amount that an assessee pays on the requisite income after deducting Advance Tax and TDS/TCS for the given financial year. Individuals who are required to file their income tax returns are liable to pay their SAT beforehand.

3. What is Advance Tax?

Advance tax in India is a system of paying income tax in instalments during the financial year, rather than making a lump sum payment at the end of the year. It is a method of regularizing tax payments to the Government. Taxpayers, including individuals, companies, and other entities, are required to estimate their total income and calculate the applicable tax liability. They then pay the tax in instalments based on prescribed due dates set by the income tax department. Advance tax helps in the timely collection of tax revenue by the Government and assists taxpayers in managing their tax obligations more effectively.

4. How to deposit Self-Assessment Tax or Advance tax to the credit of Government?

Self – Assessment Tax or Advance Tax is to be deposited to the credit of Government by using the challan prescribed in this behalf, i.e., ITNS 280. The Challan can be downloaded from www.incometaxindia.gov.in. Tax can be paid in the designated banks through two modes, viz., physical mode, i.e., cash/cheque or e-payment mode.

5. What is TDS?

TDS stands for tax deducted at source. Tax is required to be deducted at source by a person who is required to make payment and the amount deducted at source is to be remitted into the account of the Central Government. As per the Income-tax Act, tax is required to be deducted at source on certain income such as salaries, rental income dividend, interest, professional fees, commission etc., if the payment exceeds certain threshold limits.

6. What is TDS return?

Every person responsible for deduction of tax at source is required to furnish quarterly statements of Tax deducted at source.

7. What is TCS?

TCS stands for Tax Collection at Source. Seller of certain goods is responsible for collecting tax at source at the prescribed rate from the buyer. Section 206C of the Income-tax Act mentions the list of goods on which the seller should collect tax from buyers.

8. In the Challan there are terms like Income-tax on companies & Income-tax other than companies. What do they mean?

The tax that is to be paid by the companies on their income is called as corporate tax, and for payment of same in the challan it is mentioned as Income-tax on Companies (Corporation tax). Tax paid by non-corporate assessees is called as Income-tax, and for payment of the same in the challan it is to be mentioned as Income-tax (other than Companies).

9. How to calculate my tax liability?

You can calculate your tax liability by visiting the official website of Income tax department or visiting the given link:

https://incometaxindia.gov.in/pages/tools/tax-calculator.aspx

10. What are the precautions that I should take while filling-up the tax payment challan?

While making payment of tax, apart from other things, one should clearly mention following:

• Head of payment, i.e., Corporation Tax/Income-tax (other than companies)
• Amount and mode of payment of tax
• Type of payment [ i.e., Advance tax/Self-assessment tax/Tax on regular assessment]
• Assessment year
• Permanent Account Number allotted by the IT Department.

11. What is tax refund?

If you have paid more taxes than you were required to pay, you can claim the additional amount as income tax refund. If the taxes paid (either by way of Advance Tax or TDS or TCS or Self-Assessment Tax) is more than the actual tax amount due, then the excess tax paid can be claimed as refund.

12. How can I check the status of payment of tax which are made through a bank physically?

The NSDL website provides online services called as Challan Status Enquiry. One can also check the tax credit by viewing Form 26AS from the e-filing account at

https://www.incometax.gov.in/iec/foportal/

Form 26AS will also disclose the credit of TDS/TCS in one’s account.

1. When should a taxpayer file an income tax return?

2. Can a person file return of income even if his income is below taxable limits?

Yes, he can file return of income voluntarily even if his income is less than basic exemption limit.

3. What documents are to be enclosed along the return of income?

There is no need to enclose any document with the return of income. However, one should retain the documents to produce before any competent authority as and when required in future.

4. Should we disclose all our income in the return even if it is exempted?

Yes. Income from every source including exempt income must be disclosed.

5. Is there any limit of income below which I need not pay tax?

As per section 115BAC, which is a default regime for the A.Y. 2024-25 provide a limit of Rs. 3 lakhs upto which no tax is leviable. This limit is applicable for all age group individuals, HUFs, AOPs and BOIs. The default regime provides for concessional tax rate subject to certain conditions mentioned under section 115BAC.

However, in case an option is exercised to opt out of the default regime, limit of Rs. 2,50,000 is applicable for an Individual, HUF, AOPs, and BOIs upto which no tax is leviable. In respect of resident individuals of the age of 60 years and above but below 80 years, the basic exemption limit is Rs. 3,00,000 and in respect of resident individuals of 80 years and above, the limit is Rs. 5,00,000.

For other categories of persons such as firms, co-operative societies, companies and local authorities, no basic exemption limit exists and, hence, they have to pay taxes on their entire income chargeable to tax.

6. What is the major difference between default (simplified or new) tax regime and old regime?

The major difference between the default and old tax regimes is the income tax slab rates and the availability of exemptions and deductions. Under the old tax regime, taxpayers can claim exemptions and deductions on investments and expenses such as house rent allowance, medical insurance, etc. However, under the default tax regime, most of these exemptions and deductions have been removed and replaced with a reduced income tax slab rate. Once a person having business income come under default regime he cannot come out of such regime. However, a person not having business income can exercise option to opt out of default regime every year.

7. How do I choose tax regime (default or old) in income tax?

When it comes to deciding between the old and default tax regimes, it is important to consider the exemptions and deductions that can be claimed in the old tax regime. After subtracting all the eligible deductions, an individual can calculate their net taxable income.

This should then be compared to the tax liability under the new tax regime. Whichever option has the lower tax liability should be chosen.

To decide on which regime to opt, the official website has shared a link;

https://incometaxindia.gov.in/Pages/tools/115bac-tax-calculator-finance-bill-2023.aspx

1. What is Permanent Account Number (PAN)?

Permanent Account Number, in short PAN, is the unique identification number allotted by Income Tax Department to the person who applies for it. It is a ten-digit alphanumeric number issued in the form of a laminated card.

2. Can a minor have PAN?

Yes. Minor can also have a PAN. The legal guardian can apply for the PAN of the minor.

3. Why is it necessary to have PAN?

It is mandatory to quote PAN on return of income, all correspondence with any income tax authority. It is also compulsory to quote PAN in all documents pertaining to specified financial transactions.

4. Who is required to apply for PAN?

Any person who is filing return of income, making payment of tax or entering into any of the specified transactions for himself or behalf of any other person.

5. Uses of PAN

It is compulsory to quote PAN in all documents related to the following specified transactions:

• Sale or purchase of a motor vehicle
• Opening of bank account
• Application for issue of debit or credit card
• Opening of Demat account
• Payment to hotel or restaurants where payment is made in cash more than Rs. 50,000 at any one time
• Payment for foreign travel or purchase of foreign currency where payment is made in cash more than Rs. 50,000 at any one time
• Purchase of mutual funds exceeding Rs. 50,000
• Purchase of bonds or debentures exceeding Rs. 50,000
• Purchase of RBI bonds exceeding Rs. 50,000
• Cash deposit with bank or post office in any one day above Rs.50,000
• Purchase of demand draft or pay order issued by the bank, in cash on any one day above Rs.50,000
• Time deposit made with Bank, Post office, Nidhi Company or NBFC in excess of Rs. 50,000 or aggregating to Rs. 5 lakh in any financial year
• Payment for one or more pre-paid payment instruments issued by RBI to a bank/co-operative bank/any other company or institution where payment exceeds Rs. 50,000 in any one financial year
• Payment of life insurance premium more than Rs. 50,000 in a year
• A contract for sale or purchase of securities (other than shares) in excess of Rs. 1 lakh per transaction
• Sale or purchase, by any person, of shares in a company not listed in a recognised stock exchange more than Rs. 1 lakh per transaction
• Sale or purchase of any immovable property in excess of Rs. 10 lakhs
• Sale or purchase, by any person, of goods or services of any nature other than those specified above in excess of Rs. 2 lakhs per transaction.

6. Consequences of not having PAN

There are three significant implications for not having PAN:

• You will not be able to enter into the specified transactions.
• Assessing Officer may impose the penalty of Rs. 10,000 in case you entered into certain transactions but not quoted your PAN.
• Credit of TDS will not be allowed to you if the PAN is not furnished to the deductor.

7. Can a person have more than one PAN?

No. If a person has obtained or possesses more than one PAN, it is against the law, for which a penalty of Rs.10,000/- may be imposed.

8. How to apply for PAN?

PAN application should be made only on Form 49A. It can be downloaded from tin-nsdl.com

9. What if I lost my original PAN Card?

If you lost your PAN card, you could get the duplicate PAN Card by applying for it to the Income Tax Department, NSDL or UTISL. Your PAN, i.e., 10 digits alphanumeric number already issued to you, will remain same.

• Question that can be added

1. Do I need to maintain any record or proof of earnings?

For every source of income, you have to maintain proof of earning and the records specified under the Income-tax Act. In case no such records are prescribed, you should maintain reasonable records with which you can support the claim of income.

2. What is Gratuity?

Gratuity is a lump sum amount paid by the employer to the employee as a token of appreciation for the services they have provided towards the company.

3. Is gratuity taxable income?

In case of a Government employee, whether it be a State Government employee or a Central Government employee, the whole of gratuity received at the time of retirement or death is fully exempt. However, in case of a non-government employee, a certain amount of gratuity is exempted and the remaining amount is taxed.

4. I am an agriculturist. Is my income taxable?

Agricultural income is not taxable. However, if you have non-agricultural income which exceeds the basic exemption limit, then for calculating tax on non-agricultural income, your agricultural income will be taken into account.

5. As an agriculturist, am I required to maintain any proof of earnings and expenditures incurred?

Even if you have only agricultural income, you are advised to maintain some proof of your agricultural earnings/expenses.

6. If I win a lottery or prize money in a competition, am I required to pay Income-tax on it?

Yes, such winnings are liable to flat rate of tax at 30% without any basic exemption limit. In such a case the payer of prize money will generally deduct tax at source (i.e., TDS) from the winnings and will pay you only the balance amount.