Introduction
Income tax is a tax levied by the government on the income earned by individuals, businesses, and other entities. The Income Tax Act, 1961, is the law that governs income tax in India. Section 2 of the Income Tax Act, 1961, defines various important terms used in the Act. In this blog post, we will discuss section 2 of the Income Tax Act, 1961, and its various provisions.
Definitions under Section 2
Section 2 of the Income Tax Act, 1961, defines various terms used in the Act. Some of the important definitions are as follows:
Assessee
Assessee refers to any person who is liable to pay income tax under the Act. It includes individuals, Hindu Undivided Families (HUFs), companies, firms, associations of persons (AOPs), body of individuals (BOIs), and any other artificial juridical person.
Assessment Year
Assessment year (AY) refers to the period of 12 months commencing on the 1st day of April every year, following the financial year in which the income is earned. For example, the AY 2023-24 would commence on April 1, 2023, and end on March 31, 2024.
Capital Asset
Capital asset refers to any property held by an assessee, whether or not it is connected with his business or profession. It includes immovable property like land, buildings, and other structures, and movable property like vehicles, machinery, jewelry, and other personal assets.
Gross Total Income
Gross total income (GTI) refers to the total income of an assessee before deducting any deductions under Chapter VI-A of the Income Tax Act. It includes income from all sources like salary, business or profession, house property, capital gains, and other sources.
Income
Income refers to any amount received or accrued by an assessee, whether in cash or in kind, during a financial year. It includes income from all sources, including salary, business or profession, house property, capital gains, and other sources.
Apart from the definitions mentioned above, Section 2 of the Income Tax Act, 1961, also defines several other important terms that are commonly used in the Act. Some of these definitions are:
Business
Business refers to any trade, commerce, manufacture, adventure, or concern in the nature of trade, commerce or manufacture. It includes any activity that is carried on with the intention of earning profits.
Charitable Purpose
Charitable purpose refers to a purpose that is for the relief of the poor, education, medical relief, advancement of any other object of general public utility. The term also includes relief to the disabled and the preservation of the environment.
Deduction
Deduction refers to an amount that is allowed to be subtracted from the total income of an assessee to arrive at the taxable income. These deductions are allowed under various provisions of the Income Tax Act.
Financial Year
Financial year refers to the period of 12 months beginning from the 1st day of April and ending on the 31st day of March of the following year. It is the period for which income is assessed for tax purposes.
Previous Year
Previous year refers to the financial year immediately preceding the assessment year. It is the year in which the income is earned and is used to determine the tax liability of an assessee for the assessment year.
In addition to the definitions already mentioned, Section 2 of the Income Tax Act, 1961, also defines several other terms. Some of these definitions are:
- Person
Person refers to any individual, Hindu Undivided Family (HUF), company, firm, association of persons (AOP), body of individuals (BOI), local authority, artificial juridical person, or any other entity recognized by law.
2. Residential Status
Residential status refers to the status of an individual or entity as a resident or non-resident in India for tax purposes. The residential status is determined based on the number of days the person stays in India during a financial year.
3. Salary
Salary refers to any amount received by an individual as a result of his employment, whether in cash or in kind. It includes basic salary, allowances, perquisites, bonuses, and other benefits.
4. Total Income
Total income refers to the income of an assessee after deducting all permissible deductions under the Income Tax Act. It is the income on which the tax liability of an assessee is calculated.
5. Wealth Tax
Wealth tax is a tax levied on the net wealth of an individual or entity. It includes assets like real estate, jewelry, vehicles, and other personal assets.
Understanding these definitions is essential for taxpayers as it helps in determining their tax liability and also ensures compliance with the provisions of the Income Tax Act. These definitions also provide clarity on the scope and applicability of various provisions of the Act, which is crucial for proper tax planning and management.
Conclusion
Section 2 of the Income Tax Act, 1961, defines various important terms used in the Act. These definitions are essential for understanding the provisions of the Act and for determining the tax liability of an assessee. It is important for taxpayers to understand these definitions to ensure compliance with the provisions of the Income Tax Act.
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Frequently Asked Questions (FAQ’s)
- What is the Income Tax Act?
The Income Tax Act is a law that governs the taxation of income in India. It specifies the rules and regulations for filing income tax returns, paying taxes, and complying with other tax-related obligations.
2. What is the purpose of the Income Tax Act?
The purpose of the Income Tax Act is to levy and collect taxes on the income earned by individuals and entities in India. It is aimed at ensuring a fair distribution of the tax burden and to generate revenue for the government to fund various public services and welfare programs.
3. Who is liable to pay income tax in India?
Any person or entity that earns income in India is liable to pay income tax. This includes individuals, HUFs, companies, firms, AOPs, BOIs, and other entities recognized by law.
4. How is income tax calculated?
Income tax is calculated based on the income earned by an individual or entity during a financial year. The tax rate varies based on the income slab in which the individual or entity falls.
5. What are the different types of taxes levied under the Income Tax Act?
The different types of taxes levied under the Income Tax Act include income tax, surcharge, and cess.
6. What is the due date for filing income tax returns in India?
The due date for filing income tax returns in India is generally July 31st of the assessment year. However, the due date may vary for certain categories of taxpayers.
7. What is a tax deduction?
A tax deduction is an amount that is allowed to be subtracted from the total income of an assessee to arrive at the taxable income. These deductions are allowed under various provisions of the Income Tax Act.
8. What is a tax exemption?
A tax exemption is an amount of income that is not subject to taxation. These exemptions are provided under various provisions of the Income Tax Act, such as Section 80C, Section 80D, and Section 10(13A).
9. What is a tax audit?
A tax audit is an examination of the financial records of a taxpayer to verify the accuracy of the income tax returns filed by them. It is carried out by a chartered accountant or a tax professional.
10. What is TDS?
TDS stands for Tax Deducted at Source. It is a system where tax is deducted at the source of income itself, and the amount deducted is deposited with the government. This system is applicable to various types of income, such as salary, interest, and rent.
