It is the twelve-month period from April 1 to March 31 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 FY 2006-07 the AY is 2007-08.
Income earned in the twelve months contained in the period from 1st April to 31st March (Financial Year) is taken into account for purposes of calculating Income Tax. Under the Income tax Act this period is called a Previous year.
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 recognises the earners of income under seven categories. Each category is called a Status. These are Individuals, Hindu Undivided Family [HUF], Association of Persons [AOP], Body of individuals [BOI], Firms, Companies, Local authority, Artificial juridical person.
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.
The word Income has a very broad and inclusive meaning. In case of a salaried person, all that is received from an employer in cash, kind or as a facility is considered as income. For a businessman, his net profits will constitute income. Income may also flow from investments in the form of Interest, Dividend, and Commission etc. Infect the Income Tax Act does not differentiate between legal and illegal income for purpose of taxation. Under the Act, all incomes earned by persons are classified into 5 different heads, such as:
Gift exceeding Rs 25,000 is taxable unless it is received from :-
Any person who is a relative
On occasion of marriage or
Under will or by inheritance or in contemplation of death of the payer
No. The dividend declared by Indian companies is not taxable in the hands of the share holders because tax on distributed profits have already been borne by the company.
At the moment individual, HUF, AOP, and BOI having income below rupees one lakh need not pay any income tax. For other categories [persons] such as co-operatives societies, firms, companies and local authorities no such exempted limits exists, so they have to pay taxes on their entire income. In cases of senior citizens aged above 65 years and women the exempted limit for the financial year 2007-08 are rupees one lakh ninety thousand and one lakh forty thousand respectively.
For every source of income you have to maintain proof of earning and the records specified under the IT Act. In case, no such records have been laid down, you should maintain reasonable level of records with which you can support the claim of income.
The rates of income tax and corporate taxes are available in the Finance bill [the budget] passed by the Parliament every year.
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. 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.
A form called challan available in the Income Tax department, in banks and on the IT department web site should be filled up and deposited in the bank along with the money. Taxes can also be paid on-line.