Frequently Asked Questions - General

It is a tax imposed by the Government of India on any body who earns income in India. This tax is levied on the strength of an Act called Income tax Act which was passed by the Parliament of India.

What is meant by income earned in India?

Income earned in India is not limited to income earned within the geographical limits or boundaries of the country. Certain incomes are also deemed to have been earned in India although they may have been earned outside the country.

What is the period for which a persons income is taken into account for purpose of Income tax?

The period from 1st April to 31st March is called Financial Year [FY], is taken into account for purposes of calculating Income Tax. Under the income tax Act this period is called a Previous year.

What is an Assessment Year?

1st April to 31st March 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 2007-08 the AY is 2008-09.

Who is supposed to pay Income Tax?

The IT Act recognizes the earners of income under seven categories. Each category is called a Status.These are:

Is Income tax Act applicable only to residents?

No, The Income tax Act applies to all persons who earn income in India. Whether they are resident or non-resident.

Who is a resident in India?

If an individual stays in India for 182 days or more in a year, he is treated as resident in that year regardless of his citizenship or otherwise if he is in India for a period of 60 days or more during the previous year and 365 days or more during 4 years immediately preceding the previous year, then also he is considered as a resident in India. These are the basic conditions.

Who is a resident but not ordinarily resident?

If an individual satisfies at least one of the basic condition and one or none of the additional conditions, he is considered a resident but not ordinarily resident.

Who is a non-resident in India?

If an individual satisfies none of the basic conditions, he is considered as non-resident in India.

How can I know whether a company is resident or non-resident?

A company is considered as resident if it is incorporated under the Indian Companies Act. A foreign company is treated as resident if the control and management of its affairs is done entirely in India during the previous year.

How is resident/ non-resident status relevant for levy of income tax?

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.

I am an Indian scientist, who had gone abroad on a government project. Should my return of income include income earned/received abroad?

It depends on your residential status. If you are a resident all incomes earned globally are taxable. Therefore the same needs to be included in the return. However if any tax is paid on that income in the foreign country, you will get credit for the same.

What is the mechanism by which the department checks the correctness of my return of income? Would I be given an opportunity to present my views during the course of such verification?

Based on information available with the department a small percentage of returns are picked up for verification. This process is called scrutiny. You will be given full opportunity to put forth views and evidences to support your claims.

What recourse is available to me if I am unhappy with the order passed by my Assessing officer?

The Income tax Act has provided for filing appeals in such cases. The first appellate authority is the Commissioner (Appeals). Subsequently the matter can be taken to the Income Tax Appellate Tribunal, then to the High Court and Supreme Court.

Some demand has been raised by my Assessing officer after assessment. Can I pay this demand in installments or seek time till my appeal is settled?

Yes. You may approach your Assessing officer within 30 days of receipt of demand notice for installments or stay or seek time for payment. However you are liable to pay interest for delay in payment of demanded tax.