Important Definitions: - Assessee, Assessment Year, Person etc

Important Definitions:

(1). Assessee [ Section 2 (7)]: An assessee refers to any individual or entity that is subject to assessment under the Income Tax Act. This includes:

Individuals: Any person who earns income.

Companies: Corporate entities that generate income.

Firms: Partnerships or business partnerships that earn income.

Hindu Undivided Families (HUF) and Associations of Persons (AOP): Groups or families earning income together.

(2) Assessment [Section 2(8)]: Income Tax Act refers to the process of evaluating and determining the income of a taxpayer for the purpose of calculating their income & tax liability.

This involves:

• Reviewing the income that a person or entity has earned.
• Calculating the tax that needs to be paid based on that income.

Basically, it's the official procedure that tax authorities use to figure out how much tax you owe.

 

(3) Person [Sec. 2 (31)]: Under the Income Tax Act, 1961, the term "person" is broadly defined to include various entities, not just individuals. It covers all entities that can be assessed for income tax. Here's the definition in simple language, along with a chart to summarize it:

Meaning of Person in Income Tax Act

The term "person" includes:

1. Individual: A single human being (e.g., salaried person, businessman).
2. Hindu Undivided Family (HUF): A family consisting of individuals related by blood, marriage, or adoption, holding property jointly.
3. Company: Any organization registered as a company under company law.
4. Firm: A partnership entity or limited liability partnership (LLP).
5. Association of Persons (AOP) or Body of Individuals (BOI): A group of people coming together for a purpose, either with or without a profit motive.
6. Local Authority: Includes municipalities, panchayats, or any local governing body.
7. Artificial Juridical Person: Any entity not covered above but recognized by law as a person (e.g., trusts, deities, etc.).

 

Types of Persons under Income Tax Act (Understanding with Chart and examples)

Type of Person	Examples	Explanation
Individual	Salaried employee, freelance professional	Single human being paying taxes on income earned personally.
Hindu Undivided Family	Joint family business, ancestral property	Families jointly earning income under common property.
Company	Reliance Industries, Infosys, TCS	Legal entity registered under company law.
Firm	Partnership firms, LLPs	Partners collectively running a business.
Association of Persons	Housing societies, social organizations	Group working together for a common purpose, taxable as a single unit.
Local Authority	Municipal corporations, Zilla Parishads	Local government bodies providing public services.
Artificial Juridical Person	Charitable trusts, universities, deities	Entities recognized by law but not falling in other categories.

 

Income: In the Income Tax Act, the term "Income" is broadly defined under Section 2(24) to include all types of earnings or gains. It goes beyond just money earned as salary and includes a variety of other sources.

Definition of "Income"

Income under the Income Tax Act means any kind of earnings that can be:

1. Received in cash or kind (goods or services).
2. Regular or occasional.
3. Legally earned or deemed to be income.

It is taxable in the hands of the person earning it.

Here are some examples to understand the scope of "income"

Salary Income	Basic salary, allowances, bonuses, and perquisites received from an employer.
Business/Profession Income	Profit from business, fees for professional services (e.g., doctors, lawyers).
House Property Income	Rental income from a house or building.
Capital Gains	Profit from the sale of assets like shares, property, or gold.
Income from Other Sources	Interest on savings, dividends, lottery winnings, gifts (above a certain threshold).
Deemed Income	Amounts that are considered as income even if not received directly, such as unexplained credits.

 

Simple Examples

1. Salary Income:
• Example: If you earn ₹50,000 per month as salary, this is your income under "Salary."
2. Rental Income:
• Example: If you rent out your property and receive ₹20,000 per month, it is "Income from House Property."
3. Capital Gains:
• Example: You bought shares for ₹1,00,000 and sold them for ₹1,50,000. The profit of ₹50,000 is taxable as "Capital Gains."
4. Interest Income:
• Example: If your savings bank account gives you ₹5,000 in interest in a year, it is taxable as "Income from Other Sources."

But the Income Tax Act, 1961, classifies income into five heads of income under Section 14 for the purpose of taxation. Each head is defined by specific sections and covers a particular type of income.

Type of Income	Taxable Example	Section
Income from Salary	Monthly salary, bonuses	Sections 15-17
Income from House Property	Rental income from owned property	Sections 22-27
Profits & Gains from Business/Profession	Profit from a business or profession	Sections 28-44D
Capital Gains	Sale of property, shares, or gold	Sections 45-55
Income from Other Sources	Interest, dividends, winnings from lotteries	Section 56

 

Key Points to Remember

1. Taxability:
• Income is taxable in the year it is earned or accrued unless specifically exempt.
2. Exemptions:
• Some incomes, like agricultural income or specific allowances, are partially or fully exempt under the Act.
3. Deductions:
• Various sections (like 80C, 80D) allow deductions to reduce taxable income.

 

By understanding the broad scope of "income," you can identify all taxable sources and ensure proper compliance.