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FAQs on Income Tax
  1. What is Income Tax?

  2. What do you mean by ‘Income earned in India?

  3. What is the period for which a person’s income is taken into account for purpose of Income tax?

  4. What is an ‘Assessment Year?

  5. Who is supposed to pay Income Tax?

  6. Is Income tax Act applicable only to residents?

  7. Who is a resident?

  8. How can I know whether a company is resident or non-resident?

  9. How is resident / non-resident status relevant for levy of income tax?

  10. What does the Income Tax Department consider as income?

  11. Are all receipts considered as income?

  12. Is there any limit of income below which I need not pay taxes?
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  13. I am an agriculturist. Is my income taxable?

  14. What is agricultural income?

  15. Do I have to maintain any records or proof of earnings?

  16. As an agriculturist, am I required to maintain any proof of earning and expenditure incurred?

  17. How does the Government collect Income Tax?

  18. How will I know how much Income tax I have to pay?

  19. When do I have to pay the taxes on my income?

  20. How is advance tax calculated and paid?

  21. Is my responsibility under the Income tax Act over once taxes are paid?

  22. What can I do to reduce my tax?

  23. What is a ‘Return of Income?

  24. Where and how am I supposed to file my return?

  25. Who is an Assessing officer?

  26. Will I be put to any disadvantage by filing my return?

  27. What are the benefits of filing my return of income?

  28. Is it necessary to file return of income when I do not have any positive income?

  29. What are the due dates for filing returns of income / loss?

  30. If I fail to furnish my return within the due date of filing, will I be fined or penalized?

  31. Can a return be filed after the due date?

  32. So far I have never paid any tax. If I file a return this year will the IT department ask me about my earlier years?income?

  33. If I have paid excess tax how and when will it be refunded?

  34. If I have committed any mistake in my original return, am I permitted to file a corrected return?

  35. How many times can I revise the return?

  36. Am I required to keep a copy of the return filed as proof? If yes, for how long?
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  37. Why is return filing mandatory even though all my taxes and interests have been paid and there is no refund due to me?

  38. Am I liable for any criminal prosecution [arrest / imprisonment etc.] if I don’t file my income tax return even though my income is taxable?

  39. What are the benefits of obtaining a Permanent Account Number [PAN] and PAN Card?

  40. I have lost my PAN card but remember my number. Do I necessarily need to get a fresh card?

  41. I have been allotted two PANs. Which number should I use?

  42. If I do not surrender the additional PAN number, is there any problem?

  43. By mistake I have been using different PANs for different purpose like one for my demat (dematerialized equity shares) account and another for filing my Income Tax return and payment of taxes. How do I set this right?

  44. Is it mandatory to file return of income after getting PAN?

  45. What is TDS?

  46. Is TDS relevant for me as a businessman?

  47. I have deducted tax from payments disbursed but used the same for some urgent financial needs. What are the consequences?

  48. Can I use PAN to pay the TDS deducted into government account?

  49. What is the mechanism by which the department checks the correctness of my return of income? Would I be given an opportunity to present my views during the course of such verification?

  50. What recourse is available to me if I am unhappy with the order passed by my Assessing officer?
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  1. It is a tax imposed by the Government of India on any body who earns income in India.

  2. 'Income earned in India' is not limited to income earned within the geographical limits or boundaries of the country. Certain incomes are also deemed to have been earned in India although they may have been earned outside the country.

  3. Income earned in the twelve months period from 1st April to 31st March is taken into account for purposes of calculating Income Tax. Under the income tax Act this period is called a ‘Previous year?

  4. It is the twelve-month period beginning from 1st April to 31st March immediately following the ‘Previous Year? In the Assessment year a person files his return for the income earned in the previous year. For example for Previous Year 2006-07 the Assessment Year would be 2007-08.

  5. Any Individual or group of Individual or artificial bodies who / which have earned income during the previous years are required to pay Income tax on it. The IT Act recognizes the earners of income under the following seven categories: Individuals, Hindu Undivided Family [HUF], Association of Persons [AOP], Body of individuals [BOI], Firms, Companies, Local authority and Artificial juridical person.

  6. No, the Income tax Act applies to all persons who earn income in India, whether they are resident or non-resident.

  7. If an individual stays in India for 182 days or more in a year, he is treated as resident in that year regardless of his citizenship. If the stay is less than 182 days he is a non-resident.

  8. A company is considered as ‘resident?if it is incorporated under the Indian Companies Act. A foreign company can also become a ‘resident?if the control and management of its affairs is done entirely in India during the previous year.

  9. In case of resident individuals and companies, their global income is taxable in India. However non-residents have to pay tax only on the income earned in India or from a source / activity in India.

  10. Under the Act, all incomes earned are classified into 5 different heads viz. Income from Salary, Income from House Property, Income from Business or Profession, Income from Capital Gains and Income from Other Sources (not covered by the earlier heads).

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  11. No.

    Receipts can be classified into two kinds: A) Revenue receipt and B) Capital receipt.

    The general rule under the Income tax Act is that, all revenue receipts are taxable unless a receipt is specifically exempted and all capital receipts are exempt from taxation unless there is a provision to tax it. Gifts (with certain restrictions) and loans are in the nature of capital receipts and do not attract income tax.

  12. At the moment an Individual, HUF, AOP, and BOI having income below Rupees Two Hundred Thousand need not pay any income tax.

    In cases of senior citizens aged 60 years or above and 80 years or above the tax-exempt limits are Rupees Two Hundred Fifty Thousand; and Rupees Five Hundred Thousand respectively.

    For other categories of persons such as co-operatives societies, firms, companies and local authorities no such tax-exempt limit exists, therefore they have to pay taxes on their entire income.

  13. Your agricultural income is not taxable per se. However, if you have any other source of income like income from investments, property etc. then, while calculating tax on them, your agricultural income will be taken into account, so that you pay tax at a higher rate on that other income.

  14. To consider an activity as ‘agriculture? you have to do cultivating activity viz. the basic operation such as tilling; sowing, irrigating & harvesting should have been carried out. Thereafter what is sold in the market should be the primary product harvested. Receipt from such sale is considered as agricultural receipt.

    If however some further processing or modification were done to the harvested product to enhance its marketable value then such enhanced value would be considered as business income.

  15. For every source of income, you have to maintain proof of earning and the records specified under the IT Act. In case if no such records have been laid down, you should maintain reasonable level of records with which you can support the claim of income.

  16. Even if you have only agricultural income you are advised to maintain some proof of your agricultural earnings.

  17. Taxes are collected by three means:
    a) voluntary payment by persons into various designated Banks. For example Advance   Tax and Self Assessment Tax
    b) Taxes deducted at source [TDS] on your behalf from the payments receivable by you. c) Taxes collected at source [TCS] on your behalf at the time of spending.
    It is the constitutional obligation of every person earning income to compute his income and pay taxes correctly.

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  18. The rates of income tax and corporate taxes are available in the Finance bill [commonly called budget] passed by Parliament every year.

  19. Generally the tax on income crystallizes only on completion of the previous year. However for ease of collection and regularity of flow of funds to the Government for its various activities, the Income tax Act has laid down payment of taxes in advance during the year of earning itself (‘previous year?. Taxes may also be collected on your behalf during the previous year itself through TDS and TCS. If at the time of filing of return you find that you have some balance tax to be paid after taking into account your advance tax, TDS & TCS, the short fall is to be deposited as ‘Self Assessment Tax?

  20. Where the Tax Liability of a person for the year exceeds Rs. 10,000, after taking credit for the estimated TDS / TCS for the year, the person is required to pay his tax in installments in advance as under: In respect of Company assesses:

    • By 15th June of the ‘Previous Year?15 % of the estimated tax liability of the year
    • By 15th September of the ‘Previous Year?45 %of the estimated tax liability of the year
    • By 15th December of the ‘Previous Year?75 % of the estimated tax liability of the year
    • By 15th March of the ‘Previous Year?100 % of the estimated tax liability of the year
    For Others
    • By 15th September of the ‘Previous Year?30 %of the estimated tax liability of the year
    • By 15th December of the ‘Previous Year?60 % of the estimated tax liability of the year
    • By 15th March of the ‘Previous Year?100 % of the estimated tax liability of the year
  21. No. You are thereafter responsible for ensuring that the tax credits are available in your tax passbook, TDS / TCS certificates are received by you and that full particulars of income and tax payment along with necessary proof is submitted to the income tax department in the form of ‘Return of Income?before the due date.

  22. The tax can be reduced by making investment in approved schemes and also by making donations to approved charitable institutions.

  23. It is a prescribed form through which the particulars of income earned by a person in a financial year and taxes paid on such income is communicated to the Income tax department after the end of the Financial year.

  24. A return is to be filed before your Assessing officer. It may even be sent by post or filed electronically.

  25. He / She is an officer of the Income tax department who has been given jurisdiction over a particular geographical territory or class of persons.

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  26. No. On the contrary by not filing your return in spite of having taxable income, you will be laying yourself open to the penal and prosecution provisions under the Income-tax Act.

  27. Filing of return is your constitutional duty and earns for you the dignity of consciously contributing to the development of the nation. This apart, your IT returns validate your credit worthiness before financial institutions and make it possible for you to access many financial benefits such as bank credits etc.

  28. If you have sustained a loss in the financial year, which you propose to carry forward to the subsequent year for adjustment against its positive income, you must make a claim of loss by filing your return before the due date.

  29. The due dates are as follows:

    Companies and entities required to get their accounts audited, as also an individual who is a working partner of a firm which requires audit 30th September following the end of the Previous Year
    Companies and entities required to get their accounts audited under Transfer Pricing Regulations 30th November following the end of the Previous Year
    Other persons 31st July following the end of the Previous Year

  30. Yes. This may take the form of interest if the return is not filed before the end of the assessment year. If the return is not filed even after the end of the assessment year, penalty may also be levied.

  31. Yes. It may be furnished at any time before the expiry of two years from the end of the financial year in which the income was earned. For example, in case of income earned during FY 2006-07, the belated return can be filed before 31st March 2009.

  32. It is never too late to start honoring your constitutional obligations for payment of tax. The department may ask you to file return of income for earlier years if it finds that you had taxable income in those years.

  33. The excess tax can be claimed as refund by filing your income tax return. It will be refunded by issue of cheque or by crediting to your bank account. The department has been making efforts to settle refund claims within four months from the month of filing of the Return of Income.

  34. Yes, provided the original return has been filed before the due date and provided the department has not completed your assessment. However it is expected that the mistake in the original return is of a genuine and bona fide nature.

  35. Theoretically a return can be revised any number of times before the expiry of one year from the end of the assessment year or before assessment by the department is completed; whichever event takes place earlier.

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  36. Yes. Since legal proceedings under the income tax act can be initiated up to six years prior to the current financial year, you must maintain such documents at least for this period.

  37. Amounts paid as advance tax and withheld in the form of TDS or collected in the form of TCS will take the character of your tax due only on completion of self-assessment of your income. This self-assessment is intimated to the department by way of filing of return. Only then does the government acquire rights over the prepaid taxes as its own revenue. Filing of return is critical for this process and, hence, has been made mandatory. Failure will attract levy of penalty.

  38. Non-payment of tax attracts interests, penalty and prosecution. The prosecution can lead to rigorous imprisonment from 6 months to 7 years and fine.

  39. A PAN number has been made compulsory for every transaction with the Income Tax department. It is also mandatory for numerous other financial transactions such as opening of bank accounts, availing institutional financial credits, purchase of high-end consumer item, foreign travel, transaction of immovable properties, dealing in securities etc. A PAN card is a valuable means of photo identification accepted by all government and non-government institutions in the country.

  40. With your PAN you can continue to transact with the Income Tax department. However, in respect of other agencies you may encounter constraints without a PAN card since it doubles as a photo identity card.

  41. You may retain any one of the numbers and surrender the other through a letter addressed to your jurisdictional Assessing Officer.

  42. Yes. It is illegal to have two PANs and the penalty for such offence is Rs.10,000/-

  43. It is advisable to retain only one PAN, preferably the one used for Income Tax purpose and surrender the other number immediately. The institutions where the latter number has been quoted should be informed of the correct PAN.

  44. No. Return is to be filed only if you have taxable income.

  45. TDS means Tax Deducted at Source. It is the amount withheld from payments of various kinds such as salary, contract payment, commission, professional fees, payment to non-residents etc. This withheld amount can be adjusted against your tax due.

  46. Yes. Payments may be made to you after TDS. You can adjust this against your final tax liability. You are also required to effect TDS while making business payments. Failure to do so will result in the entire of expenditure being disallowed as your business expenditure and taxed as income.

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  47. t is an offence to misuse the tax deducted at source. It should have been remitted to government account within the time allowed. The failure attracts tax, interest, penalty and also rigorous imprisonment up to seven years

  48. No. You are required to take a separate Tax Deduction Account Number [TAN] by making an application in form 49B with the Tin facilitation center of NSDL.

  49. Based on information available with the department a small percentage of returns are picked up for verification. This process is called scrutiny. You will be given full opportunity to put forth views and evidences to support your claims.

  50. The Income tax Act has provided for filing appeals in such cases. The first appellate authority is the Commissioner (Appeals). Subsequently, the matter can be taken to the Income Tax Appellate Tribunal, then to the High Court and Supreme Court.

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