CBSE Book Class 11 Accounting Taxation

Accounting-Taxation

7.1 Direct Taxes

A direct tax is paid by a person upon whom it is legally imposed; its effect is borne by the tax payer, for example, income tax. Income tax is paid by an individual, a Hindu undivided family, a company, a firm, and local bodies etc. on their incomes. The effect of this tax is borne by these tax payers themselves, the tax payer cannot shift the incidence of the tax upon somebody else. In other words a direct tax is demanded from the very person who it is intended or devised for. Another example of a direct tax is wealth tax. We will be discussing income tax in detail here.

7.2 Income Tax

Income tax is a direct tax which is levied on the incomes of individuals and registered bodies. It is a very big source of government revenues. This tax is collected by the income tax department of the government mostly from such pointor p;aces where the income is generated. For example the income tax on the salary income of individuals is deducted from their salaries by their employers who, in turn, deposit it with the government. Following are the various terms used in income tax.

(i) Previous year : According to Section 3 of the Income Tax Act a previous year means a financial year immediately preceeding the assessment year. For example, for the assessment year, 2006 - 2007, the year 2005 - 2006 will be the previous year, i.e, for the assessment year 2006 - 07 the year starting from 1 April, 2005 and ending on 31 March, 2006 will be the previous year. (ii) Assessment year : According to Section 2(a) of the Income Tax Act, an assessment year means a period of twelve months beginning from 1 April and ending on 31 March. For example, the assessment year 2006 - 2007 will include the period starting from 1.4.2006 and ending on 31.3.2007. The assessment year starts from 1 April of a year and ends on 31 March of the next year.

The income earned in a year is assessed for the payment of tax in the next year. For example, Mohan earned an income of Rs 10,00,000 during the financial year starting from 1.4.2005 and ending on 31.3.2006. He is supposed to pay tax on this income during the next year starting from 1.4.2006 and ending on 31.3.2007. Here the year starting from 1.4.2005 and ending on 31.3.2006 (2005 - 2006) will be the previous year and the year starting from 1.4.2006 and ending on 31.3.2007 (2006 - 2007) will be the assessment year. Therefore, the year in which income is taxable is called the assessment year. In other words we can say that previous year is a year immediately preceeding the assessment year and the assessment year is a period twelve months starting 1 April of a year and ending on 31 March of the next year.

(iii) Calendar year : It is the year having twelve months beginning from 1 January and ending on December 31. This means that the calendar year 2007 is the year which began on 1.1.2007 and will end on 31.12.2007.

(iv) Financial year : It is the period of twelve months starting from 1 April of calendar year and ending on March 31 of the next calendar year. It means that financial year 2006 - 2007 is a period of twelve months which started from 1.4.2006 and ended on 31.3.2007.

(v) Accounting year : It is a period of twelve months beginning from any date. It may be from 1 January to 31 December; from April 1 to March 31 ; from July 1 to June 30; from October 1 to September 30.

(vi) Persons : According to Section 2(31) of the Income Tax Act a person includes the following

An individual

A hindu undivided family

A company

A firm

An association of persons, a body of individuals, whether incorporated or not

A local authority, and

An artificial jurisdical person not included in any of the above.

(vii) Assessee : According to Section 2(7) of the Income Tax Act an assessee means a person Who is liable to pay any tax or any other sum of money (interest, fine, penality etc). Under this Act iirrespective of whether any proceeding under this Act has been undertaken for assessment of his income, or the income of any other person in respect of which he is assessable or, of the loss sustained by him or by such other person, or the amount of refund due to him or to such other.

Please refer to the link below - CBSE Class 11 Accounting-Taxation