What is Income Tax.

 

Income Tax Act came up in 1961.

The Government of India defines income with 5 categories.

• Salary / Pension – An amount earned by a salaried person in a particular time period is called salary.
• House Property – The income earned through renting or leasing using house property comes under this category.
• Business or Profession – The income earned through running the business comes under this category.
• Capital – Capital Gain is the profit earned by selling of assets / investments in general.  On the contrary capital loss also exists.
• Income from other sources- This is the last subset of the type of incomes. This is the sector which reviews any kind of income that does not fall in the above four categories.

Thus, all the income comes to the light in various forms. The ways of earning can fall into one or more categories. Gross Total Income is the sum of all the incomes. Earned through the above channels. 

 

Direct and Indirect Tax

As mentioned before, tax is the source of income for the government to run the administration of the country. There are two types of Taxes. First, the Direct Tax. And, second the Indirect Tax.

S.no.	Direct Tax	Indirect Tax
1.	The Tax collected straight from a Person is called Direct Tax.	While, Indirect Tax is not collected directly. But, through different indirect sources. It is a series of collection of the tax from different persons.
2.	Direct Tax is tax on income.	Indirect Tax is on Goods and Services.
3.	Shifting the burden is not possible. Thus, only the person has to pay the tax.	The burden can be shifted. As, the taxpayers are distributed.
4.	Every entity that can earn pays the tax.	Everyone has to pay the tax irrespective of having an income or no income.
5.	The Government can individually hold a person to pay the tax.	Getting hold of every single person is not possible.
6.	For example: Income Tax, Wealth Tax.	For example: GST, Custom Duty Sales Tax.

 
What is a Financial Year in India?

A Financial Year is the time period of earning the income. The successive year, the tax on the financial income is paid. A Financial Year starts on 1 April each year and ends on 31 March the next year. Thus, Financial Year 2020 (FY 2020) denotes the time interval from 1 April, 2019 to 31 March, 2020. Therefore, a person is responsible for paying the Income Tax on the income earned in this time period.

One files the income tax return the next year. That is during 1 April, 2020 to 31 March, 2021, for FY 2020. So, when a person will pay the tax in this time interval. One would refer the Financial Year as the Previous Year. As the word previous means prior. Thus, a Previous Year is the year one refers to while paying the Income Tax.

 

What is an Assessment Year in India?

Assessment Year is that successive year in which the details of the tax paid are filed. Thus, the filing process goes on in an Assessment Year. Hence, continuing the above example in Previous Year, Assessment Year is from 1 April, 2020 to 31 March, 2021. As the word suggests, this time period is dedicated to the evaluation of the taxes of a previous year. And, at the same time it is a Financial Year in itself. Thus, every year is an Assessment Year and a Financial / Previous Year.

 

What is a PAN Card?

PAN stands for Permanent Account Number. It is a card having a 10-digit code. And, issued by the Income Tax Department. To prevent any misdeed in case of tax payment, the above card is issued by the Income Tax. So, one can understand the main reason for the need of PAN for a New Bank Account. It requires PAN Card so as to keep an eye on the Income and the taxation on it.

 

What is the importance of a PAN Card?

A PAN Card has many other uses as well. It is a very important document for the businesses. Because, it is mandatory to start a business. Some firms have an independent PAN. A person cannot have more than one PAN. The validity of a PAN is lifetime in India for a resident. Irrespective of the address change. Or, any other changes within the country. However, the PAN Card’s data can be altered. For the alteration, one has to apply for the correction in the PAN card, in the Income Tax Department.

 

Summary.

Income Tax is a Direct Tax and Mandatory for every Person with an income to pay. A person can be a separate entity or an individual with a source of Income. Taxes on income are paid during the financial year. And, the returns are filed during the Assessment year. PAN Card is a very important document. And an important part of Income Tax.