General:

As stated earlier the Income Tax Act 1922 was

repealed with effect from 01-04-1962 and a New Act
called INCOME TAX ACT 1961 was introduced
from the Assessment Year 1962-63. Since the
introduction, the New Act has undergone
innumerable changes by way of Amendments,
Substitutions, deletions and insertions of various
provisions. Hence to keep track of the frequent
changes and the years from which these have
become operative is to be kept in mind.

Assessment:
The Income Tax Act is machinery for computing the
Total Income of the previous year from various
sources as classified in Section 14 of the Act.
Such Computation or Assessment is made after
allowing various exclusions, exemptions and
deductions as provided under the Act. However the
IT Act does not prescribe the rate at which Tax has
to be charged. Section 4 of the IT Act lays down
that IT shall be charged for any Assessment Year in
respect of the Total Income of the previous year
computed under the Act at the rates prescribed by
the Finance Act which is passed every year by the
Parliament.

Thus while the Total Income is computed under the

IT Act which is permanent enactment, the Tax
payable on such income has to be worked out at the
rates laid down in finance Act, which is an annual
enactment.

Thus the Assessment comprises two stages.

Computation of Total Income and
Determination of Tax Payable.
When both these stages are completed an assessment
is said to have been made.
The Finance Bill is usually passed by the Parliament
and receives the assent of the President, long after
1st April.

Then a question arises as to what would be the

effective rates at which Tax has to be charged during
the pendency of the bill.

The Answer to this question is provided in section

294 of the Act, According to which the effective rates
would be the rates in force in the preceding year or
the rates proposed in the finance bill, whichever is
more favorable to the Assessee.

Assessment Year:
The Assessment year comprises a period of 12
months commencing from 1st April and ending on 31st
March.

Previous Year:
There will be only one previous year for all the
Assessee i.e., ending on 31st of March for all sources
of Income.
Ex: For the Assessment Year 2014-15 the previous
year would be from 1st April 2013 to 31st March 2014.

The Next Question arises as to whether full 12

months have to be completed for determining
Assessment Year.
In other words, if the Assessee starts his Business on
01-08-2013 the previous year for the Assessment
Year 2014-15 would be 01-08-2013 to 31-03-2014.

Assessee:
The Assessee is a person by whom any tax or other
sum such as Interest, Penalty etc is payable under
the Act. It also includes any person deemed to be
an Assessee.

U/s 2(31) of the Act, persons are divided into

following categories:
1.
2.
3.
4.
5.

Individual.
HUF (Hindu Undivided Family).
Company.
Firm.
AOP (Association of persons)/ BOI
Individuals).
6. Local Authority

(Body

of

and

7. Every Artificial Juridical Person not falling in any

of the preceding categories.

HUF:
HUF consists of all persons lineally descended from
a common male ancestor and is assessable in
respect of Income derived from Joint family corpus
not being the Income earned by its Individual
members in their individual and personal capacity.

Company:
Company is defined in Sec 2(17) of the IT Act (such
as any Indian Company).
Firm:
A Partnership of Two or more persons (But not
exceeding 20 persons) carrying on a business or
profession
constituted
under
the
Indian
Partnership Act 1932.

AOP/BOI:
AOP or BOI i.e., combination of persons formed for
promotion of a Joint Venture or a Joint Enterprises,
Executors of an Estate, Trustees of a Trust.
Local Authority:
Ex: Municipality local boards etc.
Artificial Juridical Person:
Ex: Lord Venkateshwara a Hindu Deity.

Status: (Section 6)
The Income liable to Tax in the hands of an
Assessee is determined on the basis of Residential
Status.
For this purpose the Assessee are divided into two
categories:
Resident in India.
Non Resident to India.

Individuals and Hindu Undivided Families who are

residents in India are again classified as
Ordinary Resident.
Not Ordinary Resident.

Ordinary Resident:
An Individual would be treated as Resident in India
if he fulfils any of the following two conditions
1) He is in India for a Period of 182 days or more.
OR

2) Having within 4 years preceding that year been

in India for Period/s amounting in all 365 days
or more and has been in India for 60 days or
more in that year.

Note:
The Residential status of an Individual who is
rendering service outside India and who visits India
during leave or vacation in any previous year or an
Individual who is outside India in any previous year
will be determined as under.
An Indian citizen who leaves India in any previous
year for the purposes of employment outside India
or a crew member of an Indian Ship would be
treated as Resident in India if the period of stay in
India in that year Amounts to 182 days or more
(Instead of 60 days as stated above).

A. An Indian citizen who leaves India in any

previous year for the purposes of employment
outside India or a crew member of an Indian
Ship would be treated as Resident in India if the
period of stay in India in that year Amounts to
182 days or more (Instead of 60 days as stated
above).
Conversely if the period of his stay in India is
less than 182 days he will be treated as NonResident for that year and consequently his
foreign income would not attract Tax Liability.

B. An Indian citizen or a person of Indian origin

who resides outside India and who comes on a
visit to India in any previous year will be treated
as Resident in India. If his stay in India in that
year amounts to 182 days or more ( Instead of
60 days as stated above).
Conversely he will be treated as Non Resident
if the period of his stay in India in that year is
less than 182days

Who is an Indian origin?

A person shall be deemed to be of Indian Origin if

he, or his Parents or if any of his Grand Parents
was born in un-divided India.

In respect of HUF/Firm/Other Association of

persons it is said to be resident in India except
where during that year the control and
management of its affairs is situated wholly outside
India (Section 6(2)).

A company is said to be a resident in India in any

previous year if it satisfies any of the following two
conditions
1. It is an Indian Company.
2. During that year the control and management of
its affairs is situated wholly in India
(Section 6(3)).