The total taxable income of a person includes all incomes received, accrued or earned by him during previous year.
Previous Year
In the language of Income-tax Act, ‘previous year’ is the financial year ending on 31st March every year. [Sec. 3]
Assessment Year
It is the period of 12 months commencing on the 1st day of April immediately after the previous year. For example, for previous year ending on 31.3.2000,the assessment year is 2000-2001 (i.e. from 1.4.2000 to 31.3.2001).
What Incomes are to be included in Total income
It depends upon the residential status of the assessee.
In case of Resident Persons, incomes received, accrued, arisen in India, are to be included. Also, incomes which accrue or arise outside India are to be included.
In case of Not Ordinarily Resident Persons, incomes received, accrued, arisen or deemed to be received, accrued or arisen in India, are to be included. Income which accrues or arises outside India from a business controlled in India or a profession set up in India is also to be included.
In case of Non-Resident Persons, incomes received, accrued, arisen or deemed to be received, accrued or arisen in India, are only to be included. [Sec. 5]
Income is chargeable to tax either on accrual basis or on receipt basis, whichever is earlier. However, if an income has been taxed on accrual basis, it shall not be taxed again on receipt basis. [Sec. 5 Expl.2]
Instances of Incomes deemed to accrue or arise in India [Sec. 9]
(a) Income through or from business connection in India;
(b) Income through or from any property, asset or source of Income in India Such as royalty for patents or copyrights or secret process used in India;
(c) Transfer of a capital asset situated in India;
(d) Salaries for services rendered in India;
(e) Salaries payable by Government to India citizens for services outside India;
[Note: Salary payable for services rendered in India, and the period of rest or leave preceding and succeeding such services in India, shall be regarded as income earned in India.]
(f) Dividends paid by an Indian company outside India;
(g) Income by way of interest;
(h) Income by way of royalty;
(i) Income by way of fees for technical services;
(j) Pension, if it accrues to a person by virtue of services rendered in India, except u/s 9(2).
Incomes mentioned in Section 10 are not to be included in the total income. Besides, complete tax exemption has been provided in respect of certain incomes.
Capital Receipts are not Taxable
Capital Receipts are exempt unless they are expressly taxable, for example, capital gains are taxable u/s 45 even though they are capital receipts. The distinction between revenue receipts and capital receipts is, therefore, of vital importance. It is, however, difficult to state any specific test for ascertaining the character of any receipt; it will always depend on the facts and circumstances of each case.
Following are a few instances of capital receipts which have been held to be exempt from income tax:
(i) gifts;
(ii) life insurance receipts;
(iii) sum received as testimonial of personal qualities;
(iv) sales tax subsidy received by the assessee.
It has been clarified that gifts of purely personal nature will not be chargeable to income-tax except when they can be regarded as an addition to the salary or when they arise from the exercise of a profession or vocation.
It may be noted that w.e.f A.Y.2000-01, insurance receipts under a general insurance policy relating to a capital asset, shall be subject to tax as capital gain u/s 45(1A).
Income of Persons governed by Portugese code
In computing the total Income of husband and wife governed by the system of community of property as in force in Goa, Dadra and Nagar Haveli, Daman and Diu, the income from all sources, except salary, shall be apportioned equally between the husband and wife. Even the income from profession will be apportioned equally between the husband and the wife. The income so apportioned will be included separately in the total income of the husband and of the wife and the remaining provisions of the Act shall apply accordingly. Salary income will be assessed in the hands of the spouse who has actually earned it. [Sec. 5A]
