Introduction:
Income tax is a direct tax levied on the income earned by individuals, companies, and other entities. The Income Tax Act is the legislation that governs the levy, collection, and administration of income tax in India. Section 2 of the Income Tax Act, 1961 defines various important terms and concepts used in the Act. In this blog, we will discuss Section 2 of the Income Tax Act in detail.
Definitions of Important Terms:
The Income Tax Act defines several important terms in Section 2, including:
Assessment Year (AY): Assessment Year refers to the financial year in which the income is assessed and taxed. For example, if the financial year is 2022-23, the assessment year will be 2023-24.
Previous Year (PY): Previous Year refers to the financial year immediately preceding the assessment year. For example, if the assessment year is 2023-24, the previous year will be 2022-23.
Person: Person includes an individual, a Hindu Undivided Family (HUF), a company, a firm, an association of persons (AOP), a body of individuals (BOI), a local authority, and every other artificial juridical person.
Gross Total Income (GTI): Gross Total Income is the total income earned by a person during a financial year before any deductions or exemptions.
Total Income: Total Income is the income on which tax is calculated after considering all the deductions and exemptions.
Assessment: Assessment refers to the process of evaluating and determining the tax liability of a person.
Capital Asset: Capital Asset refers to any property owned by a person, whether movable or immovable, but excludes certain specified items such as stock-in-trade, consumable stores, and personal effects.
Income: Income refers to any amount received by a person in the form of money, goods, or services, which is taxable under the Income Tax Act.
Income from Salaries: Income from Salaries includes all payments received by an employee from his employer in the form of salary, wages, bonus, commission, and perquisites.
Income from House Property: Income from House Property refers to the income earned by a person from the ownership of a house or property.
Apart from the above-mentioned definitions, Section 2 of the Income Tax Act also defines other important terms such as:
- Business: Business refers to any trade, commerce, manufacture, adventure, or concern in the nature of trade.
- Capital Gains: Capital Gains refers to the profit or gain arising from the transfer of a capital asset.
- Deduction: Deduction refers to an amount that can be subtracted from the gross total income to arrive at the taxable income.
- Income Tax: Income Tax is a tax levied by the government on the income earned by individuals, companies, and other entities.
- Permanent Account Number (PAN): PAN is a unique identification number allotted by the Income Tax Department to individuals and entities.
- Return of Income: Return of Income is a document filed by a person with the Income Tax Department declaring his income for a financial year and other related information.
- Taxable Income: Taxable Income is the income on which tax is levied after deducting all the deductions and exemptions available under the Income Tax Act.
- Wealth Tax: Wealth Tax is a tax levied by the government on the net wealth of individuals and Hindu Undivided Families.
Additional Information on Section 2 of the Income Tax Act:
Apart from the definitions mentioned above, Section 2 of the Income Tax Act also defines other crucial terms such as:
- Agricultural Income: Agricultural Income is the income earned from agricultural land situated in India.
- Business Trust: Business Trust refers to a trust registered as a Real Estate Investment Trust or an Infrastructure Investment Trust under the Securities and Exchange Board of India (SEBI) regulations.
- Charitable Purpose: Charitable Purpose refers to a purpose that falls under the categories of relief of the poor, education, medical relief, and advancement of any other object of general public utility.
- Dividend: Dividend is the payment made by a company to its shareholders out of its profits or reserves.
- Joint Ownership: Joint Ownership refers to the ownership of a property by more than one person.
- Non-Resident: Non-Resident refers to an individual or entity that is not a resident of India under the Income Tax Act.
- Resident: Resident refers to an individual or entity that is a resident of India under the Income Tax Act.
- Royalty: Royalty is the payment made by a person for the use or right to use any patent, invention, design, trademark, or copyright.
- Securities: Securities refer to shares, debentures, bonds, and other financial instruments.
Conclusion:
In conclusion, Section 2 of the Income Tax Act provides an extensive list of definitions that are crucial for understanding the Act’s provisions. These definitions are essential for determining the tax liability of individuals and entities accurately. Taxpayers must have a clear understanding of these definitions to comply with the Income Tax Act’s provisions and avoid any legal complications. A thorough understanding of Section 2 will also help taxpayers to take advantage of the deductions and exemptions available under the Act and minimize their tax liability.
Read more useful content:
Frequently Asked Questions (FAQs)
- What is the definition of “Assessee” under Section 2 of the Income Tax Act?
The term “Assessee” means any person who is liable to pay tax under the Income Tax Act.
2. What is the definition of “Assessment Year” under Section 2 of the Income Tax Act?
The term “Assessment Year” refers to the year immediately following the financial year in which the income is earned.
3. What is the definition of “Business” under Section 2 of the Income Tax Act?
The term “Business” refers to any trade, commerce, manufacture, adventure, or concern in the nature of trade.
4. What is the definition of “Capital Asset” under Section 2 of the Income Tax Act?
The term “Capital Asset” refers to any property held by an individual, except for stock-in-trade, consumable stores, and raw materials.
5. What is the definition of “Charitable Purpose” under Section 2 of the Income Tax Act?
The term “Charitable Purpose” refers to a purpose that falls under the categories of relief of the poor, education, medical relief, and advancement of any other object of general public utility.
6. What is the definition of “Dividend” under Section 2 of the Income Tax Act?
The term “Dividend” refers to the payment made by a company to its shareholders out of its profits or reserves.
7. What is the definition of “Permanent Account Number (PAN)” under Section 2 of the Income Tax Act?
The term “Permanent Account Number (PAN)” refers to a unique identification number allotted by the Income Tax Department to individuals and entities.
8. What is the definition of “Resident” under Section 2 of the Income Tax Act?
The term “Resident” refers to an individual or entity that is a resident of India under the Income Tax Act.
9. What is the definition of “Securities” under Section 2 of the Income Tax Act?
The term “Securities” refers to shares, debentures, bonds, and other financial instruments.
10. What is the definition of “Taxable Income” under Section 2 of the Income Tax Act?
The term “Taxable Income” refers to the income on which tax is levied after deducting all the deductions and exemptions available under the Income Tax Act.
