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Income Tax

What is Income Tax ? As the name itself suggests it is Tax on Income. It has two

components Tax & Income.

Tax is defined by shorter Oxford English ictionary as !compulsory contribution to statere"enue# le"ied by go"ernment on personal income and business profits or added to the

cost of some goods# ser"ices and transactions$. %or the purpose of understanding term tax

from our subect point of "iew# it would be enough to gather the related meaning# as !it isle"y imposed by the 'nion (o"ernment on the income earned by a person during a gi"en

financial year.$

The power to tax income is "ested with central go"ernment. This power is entrusted to thecentral go"ernment by "irtue of )onstitution in general & by Entry *o.

The law for determining a particular sum to be !Income$ is dealt with by Income Tax Act#

+,-+ howe"er# the rates of income tax are prescribed by the %inance Act passed e"ery

year by the arliament. /ay for example the income earned by a person in the financiayear 0112314 will be assessed to income tax in the assessment year 011431,. %or

assessment year 011431, the rates will be declared by the %inance Act# 0114 i.e. through

'nion 5udget30114 presented by the %inance 6inister in the arliament 78o9 /abha: &subse;uently discussed at both the houses of parliament 7i.e. 8ower

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efinitions under the I. tax Act 3

a: Assessment ear B /ec.07,: means the period of twel"e months commencing on

the first day of April e"ery year. Assessment year is the year in which the incomeearned by the assessee during the pre"ious year is assessed to income tax. Thus

assessment year 011431, will commence on + stof April# 0114 & will end on C+ s

march# 011,.

b: re"ious ear B /ec.07CD: read with /ec.C. /ec 07CD: defines pre"ious year as

!pre"ious year! means the pre"ious year as defined u>s C.

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The third type of definition is called mixed / hybridwhich typically begins with the

phrase GmeansG and progresses with the term Gand includesH. A classic example ofthis type of definition is term GAssesseeH as defined u>s 072:.

The fourth type of definition can be said to be Gdirecti"eH definition. %or example

definition of the term pre"ious year. /ec 07CD: directs us to /ec C for the meaning ofthe term pre"ious year.

The term !Income$ is also defined u>s 0 70D: under the I.Tax Act. The definition of the

term is inclusi"e & not exhausti"e. It encompasses x" 7fifteen: sub sections# whichgi"e "arious instances >items which are included within the meaning of the term

Income.

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computing income of the assessee. /ince it is a charge on the person and paid directly

by the person hence it is recogniKed as direct tax.

'nder the /cheme of Income Tax Act# it is well settled that the "arious types of income

are co"ered for taxation purpose in to %i"e maor