Notes- Income Tax

Under Income Tax Act all incomes are categorized under 5 Heads of Income.
There is a charging section under each head of income which defines the
scope of income chargeable under that head. These heads of income cover
all possible avenues for a person to earn any income. Accordingly income
earned is classified under the following heads:

a. Income under the head Salary : Earned by employee from his employer
b. Income under the head House Property : Rental income earned by a
landlord from house property
c. Income under the head Profits and Gains from Business and
Profession(PGBP) : Business income
d. Income under the head Capital Gains: Income by sale/transfer of Capital
Asset
e. Income under the head Other Sources: Residual head of income.

Every person whose Total Income of the previous year exceeds the maximum
amount which is not chargeable to tax, is an assessee and such total income
shall be chargeable to Income Tax at the rates prescribed in the Act for that
relevant assessment year. However this Total income shall be determined on
the basis of the residential status of the assessee in India.

“Assessment year” means the period of twelve months commencing on 1st

April every year. Therefore, the period beginning on 1st April of one year and
ending on 31st March of the next year. Income of previous year of an
assessee is taxed during the following assessment year at the rates
prescribed by the relevant Finance Act.

All assesses are required to follow a uniform previous year i.e. The Financial
Year (1st April to 31st March) as their Previous year. Although assessee may
maintain books of accounts on calendar year basis (1st January to 31st
December) but his previous year for income tax purposes shall be the
Financial year.
Example 2 : A joins an Indian company on February 17, 2019. Prior to joining
this Indian company he was not in employment nor does he have any other
source of income. Determine the previous year of A for the assessment
years 2019-20 and 2020-21.

Answer : Previous years for the assessment years 2018-19 and 2019-20 will
be as follows.
Previous year Assessment year
Feb. 17, 2019 to March 31, 2019 2019-20
April 1, 2019 to March 31, 2020 2020-21