What is Income?
Income, as per the Income Tax Act, is set in five categories that anyone who has a source of earning is liable to pay.
(i) Salary Income: Payment received from one’s employer is part of this category including basic pay, annuity, advances, allowance, transport conveyance, perquisites and retirement benefits, among others.
(ii)Income from House Property:
Income in the form of rent received from residential or commercial property that one owns is taxable under law as Income From House Property.
(iii) Income from Business And Profession: If one earns income from business or from an independent profession, then income in the form of profits (in case of business) and professional fees (in case of profession) will be taxed under this category.
(iv) Capital Gains Income: Gain from the transfer of a capital asset which is held in the form of investment including real estate, jewelry, shares of companies, bonds, etc. are termed as income under this category. Assets that have been received as gifts, e.g. inheritance, are not accounted or in this category unless they are sold.
(v) Income from Other Sources: Any income received that is not included in the four categories above falls under income from other sources. They can be recurring like interest (earned from post office savings, bank deposits, savings bank deposits, recurring deposits), and non-recurring income is income earned once by way of lottery, game show or gambling.
2. What is Income Tax?
Income tax is levied on the income earned by all the individuals, HUF, partnership firms, LLPs and Corporates as per the Income tax Act of India. In the case of individuals, tax is levied as per the slab system if their income is above the minimum threshold limit (known as basic exemption limit).
What is Tax-Free Income?
Income which is not liable for taxation like agricultural income, receipts from HUF, interest earned by NRIs on bonds notified by Central Government, gratuities, commutation of pension, proceeds from insurance received after the death of the insured person, Provident Fund receipts, among others.
Who is an Assesse?
An assesse is a person or entity who is entitled to pay the taxes. It could be an individual, an HUF or Hindu Undivided Family, partnership firm, company, BOI (Body of Individuals) or AOP (Association of Persons).
What is a Financial Year and an Assessment Year?
The year in which income is earned and advance tax paid is the financial year. Assessment year is the year following the financial year when the income tax department assesses the income tax returns filed by the taxpayer. So, for the Financial Year 2023-24, the assessment year is going to be 2024-25.
What is TDS?
TDS stands for ‘Tax Deducted at Source’. It was introduced to collect tax at the source from where an individual’s income is generated. TDS is applicable on various incomes such as salaries, interest received, commission received, dividends etc.