Basic Concepts of Income Tax – Part II

Covering Assessment Year and Previous Year

0
3616
Basic Concepts

Updated upto A.Y. 2019-20

Income of the previous year of a person is charged to tax in the immediately following assessment year.

Assessment Year [Sec. 2(9)]

Assessment year means the period of 12 months commencing on the 1st day of April every year. It is the year (just after previous year) in which income earned in the previous year is charged to tax.

Duration: Period of 12 months starting from 1st April.

Relation with Previous Year: It falls immediately after the Previous Year.

Previous Year [Sec.3]

Previous Year means the financial year (it is mandatory to follow) immediately preceding the Assessment Year. The year in which income is earned is known as Previous Year and the next year in which income is assessed is known as Assessment Year.

First Previous Year of New Source

Previous Year in case of new business / new source of income

In case ofPrevious year is the period
Business or profession being newly set-upBeginning with the date of setting up of the business & ending on 31st March of that financial year.
A source of income newly coming into existenceBeginning with the date on which the new source of income comes into existence & ending on 31st March of that financial year.

Where an assessee has an existing regular income from various sources and he earns an income from a new source during the financial year, his previous year shall commence:

For the existing income: From 1st April of previous year; and

For new income: From the date when on which the new source of income comes into existence.

Also Read  Computation of income under the head Salary - Part 3: Valuation of Perquisites

Example 1

Financial year 2018-19 is:

Assessment year for the Previous Year 2017-18; and

Previous Year for the Assessment Year 2019-20.

Example 2

Business commenced on 10-03-2019

First previous year for such business shall be: from 10-03-2019 to 31-03-2019

Exceptions

This is the general rule that income of the previous year of an assessee is charged to tax in the immediately following assessment year. However, in the following cases, income of the previous year is assessed in the same year in order to ensure smooth collection of income tax from the taxpayer who may not be traceable, if assessment is postponed till the commencement of the Assessment Year:

  1. Income of a non-resident assessee from shipping business (Sec. 172)
  2. Income of a person who is leaving India either permanently or for a long period (Sec. 174)
  3. Income of bodies, formed for a short duration  (Sec. 174A)
  4. Income of a person who is likely to transfer property to avoid tax (Sec. 175)
  5. Income of a discontinued business (Sec. 176). In this case, the Assessing Officer has the discretionary power i.e. he may assess the income in the same previous year or may wait till the Assessment year.

You must be logged in to post comments