Income Tax Basics

Basic Concepts of Income Tax

• Income refers to the money or value earned by an individual or organization from various sources.
• Agricultural income is exempt from income tax, except for certain exceptions such as revenue from marketing of agricultural products or processing of agricultural products.
• Casual income is irregular or non-recurring income, such as prizes, gifts, or winnings from lotteries.

Time Periods in Income Tax

• Assessment year is the year in which the income tax is calculated and assessed.
• Previous year is the year in which the income is earned, which is used to calculate the income tax.

Income Tax Calculations

• Gross total income is the total income earned from all sources, before deducting any exemptions or deductions.
• Total income is the gross total income minus deductions and exemptions.
• Person refers to an individual, Hindu Undivided Family (HUF), firm, local authority, company, or any other entity that is liable to pay income tax.

Tax Practices

• Tax evasion is the intentional and illegal non-payment of income tax, which can lead to penalties and prosecution.
• Tax avoidance is the legal minimization of income tax liability, using loopholes and exceptions in the tax laws.
• Tax planning is the process of minimizing income tax liability, using legal and ethical means, such as investing in tax-saving instruments.

Scope of Total Income

• Total income includes all income earned from various sources, except for certain exemptions and deductions.
• Residence and tax liability refer to the tax liability of an individual or entity based on their residence status in India.
• Certain income does not form part of total income, such as agricultural income, gifts, and income from exempted sources.

Deductions from Gross Total Income

• Deductions are allowed from gross total income to reduce the tax liability, such as deductions under Section 80C, 80D, and 80G.