Basic principles for charging of income to tax

Income tax is a tax charged on income of any person. Income tax is an annual tax on income. Income earned in financial year is taxed in the subsequent year. The year in which the income is earned is known as Previous Year and the immediately following the financial year in which the income is taxed is known as Assessment Year. Income earned in previous year ending March 31st 2011 i.e. 2010-11 will chargeable to tax in the assessment year 2011-12. The rates at which the income is chargeable to tax are fixed annually by the Finance Act. Income of a person is required to be computed for the taxability purpose. For individuals, there are five heads of income namely
• Income from Salary
• Income from House Property
• Income from Business & Profession
• Income from Capital Gain
• Income from Other Sources
While computing the income under the different heads, applicable exemption & deduction should be taken into consideration. Clubbing provision (if any) should be considered. Losses of the year should be carried forward and earlier year losses are to be set off. The income after such adjustment is called Gross Total Income. After that deduction under chapter VIA should be claimed. Income so arrived is the Total Taxable Income on which the tax is computed as per the prescribed rates. The tax so computed shall be reduced by the TDS & Advance Tax paid. Interest u/s 234A, 234B & 234C shall be chargeable if applicable. The final tax so arrived shall be rounded off at the nearest multiple of ten rupees. If tax liability is more than the prepaid taxes, the difference shall be paid by way of Self assessment tax. If prepaid taxes exceed the actual tax liability then refund should be claimed.

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