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Tips & Tricks In Income Tax

Q-1 What are the different Heads of Income according to Income Tax Act ?

There are 5 different Income heads. The Income under each head will be charged to Income Tax. Thus the tax will be computed on the basis of total income.

  1. Salaries including Allowances, value of Perquisites, Profits in  lieu of salary and Pensions.

  2. Income from House Property whether residential, commercial or let out.

  3. Profits & Gains of Business / Profession.

  4. Capital Gains - Short & Long Term.

Income from other Sources including Bank Interest, Interest on Securities, Lotteries, Cross word Puzzles, Races, Games, Gift received on or after 1-9-2004 in excess of Rs. 50,000 in cash etc. from unrelated persons.


Q-2 Who All Have To Pay Income-Tax ?

  1. Individual including Non-resident, Hindu Undivided Families (HUF), Bodies of Individuals (BOI), Association of Persons (AOP) & Artificial Juridical Persons ( such as Deities of Temples) having taxable income exceeding Rs.1,60,000 (Rs. 1,90,000 for Resident Women assesses below 65 Years and Rs. 2,40,000 for Resident Senior Citizens for Asssessment Year 2011-2012)

  2. Societies & Charitable / Religious Trusts having taxable income exceeding Rs.1,60,000.

  3. All Partnership Firms irrespective of their Income.

  4. Co-Op. Societies irrespective of their Income.

  5. All Companies irrespective of Income.

  6. Local Authorities like, Panchayats, Municipal Corporation etc.

Q-3 How Income-Tax Will Be Charged By The Income Tax  Department ?

Income Tax is charged on 5 different heads. Aggregate of taxable income under each head of income is known as Gross Total Income and

so Taxable Income = Gross Total Income - Allowance Deductions.

Deduction of Expenditure :

In computing income under various heads, deduction is allowed towards expenditure incurred in relation to earning the income. However, no deduction shall be allowed  in respect of expenditure incurred in relation to incomes exempt from tax.

Computation of Gross Total Income :

It is the aggregate of incomes under various heads of income calculated after set-off of unabsorbed depreciation/loss, carried forward from earlier years.

Set-off and Carry Forward :

Set-off means adjustment of certain losses against the income under other sources / heads. Carry forward implies carrying forward of certain losses for set-off in subsequent years.

Total / Taxable Income :

Total / Taxable Income is computed after deducting permissible deductions under section 80A to 80U, from the Gross Total Income.

Where the Gross Total Income of the Assesses includes Short-Term Capital Gains from transfer of equity shares / units of an equity oriented mutual fund subject to Securities Transaction Tax or any Long-Term Capital Gains, then no deduction shall be allowed against such Capital Gains.

On this Taxable Income, Income Tax will be calculated as per the applicable rates


Q-4 Meaning of Assessment Year & Previous Year :

Assessment Year : [ Sec. 2 (9)]

“ Assessment Year” means the period of 12 months commencing on the 1st day of April every year.

In India, the Govt. maintains its accounts for a period of 12 months i.e. 1st April to 31st March every year. As such it is known as Financial Year.  The Income Tax department has also selected same year for its Assessment procedure.

The Assessment Year is the Financial Year of the Govt. of India during which income a person relating to the relevant previous year is assessed to tax. Every person who is liable to pay tax under this Act, files Return of Income by prescribed dates. These Returns are processed by the Income Tax Department  Officials and Officers. This processing is called Assessment. Under this Income Returned by the assessee is checked and verified.

Tax is calculated and compared with the amount paid and assessment order is issued. The year in which whole of this process is under taken is called Assessment Year.

At present the Assessment Year 2010-2011 ( 1-4-2010 to 31-3-2011) is going on.

Example- Assessment year 2008-09 which will commence on April 1, 2010, will end on March 31, 2011.

Previous Year : [ Sec. 3 ]

As the word ‘Previous’ means ‘coming before’ , hence it can be simply said that the Previous Year is the Financial Year preceding the Assessment Year  e.g. for Assessment Year 2008-2009 the  Previous Year should be the Financial Year ending 31st March 2008.

Previous Year in case of a continuing Business :

It is the Financial Year preceding the Assessment Year. As such for the assessment year 2008-2009, the Previous Year for continuing business is 2007-2008 i.e. 1-4-2007 to 31-3-2008.

Previous Year in case of newly set up Business :

 The Previous Year in case of newly started business shall be the period between commencement of business and 31st March next following . e.g. in case of a newly started business commencing its operations on Diwali 2007, the Previous Year in relation to Assessment Year 2008-2009. shall be the period between Diwali 2007 to 31 March 2008.

Previous Year in case of newly created source of income :          

In such case the Previous Year shall be the period between the day on which such source comes existence and 31st March next following.

Sl. No.



Previous Year


Cash Credit


Financial Year in which found to be entered.


Unexplained Investment


Financial Year preceding the Assessment Year


Unexplained Bullion, Cash, Jewelley


Financial Year in which found in the possession of the assessee.


Partly explained Investment


Financial Year in which Investment was made.


Unexplained Expenditure


Financial Year in which expenditure was incurred.


Payment of Hundi, Money in Cash


Financial Year in which such payment was made.


Q-5. Income earned against the following Investments are totally Tax-FREE !

  1. Dividend received on Shares, Equity Oriented Funds of UTI & other Mutual Funds.

  2. Interest received on 6.5%,7%,8%,8.5%  & 9% RBI Tax

  3. Free Relief Bonds.

  4. Interest on PPF/GPF/EPF

  5. Any amount received from Life Insurance against insurance policies (except on Jeevan Aadhar, Key-man    Insurance, Jeevan Dhara, Jeevan Akshay, New Jeevan Dhara & New Jeevan Akshay & similar other policies of Private Life Insurers).

However, from F/Y 2003-2004 Premiums exceeding 20% of the SA, in any year, will not enjoy Tax Free  Return u/s 10 (10 D) (except on death).

6. Long Term Capital Gain earned on Sale of listed securities (Shares)

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