According to the Section 3 of the Income Tax Act, the income earned in current year, i.e., the current financial year is known as ‘Previous Year’. From an income tax perspective, the income earned in the current year is taxed in the next financial year.
For example, if the assessment year is 2023-2024, the previous year in income tax would be 2022-2023 – i.e. the salary earned between the period of 1st April 2022 – 31st March 2023.
According to Section 3 of the Income Tax Act, the previous year will be considered from the date the source of income came into existence, if it’s a new business, till the 31st March of the said financial year. This means that when a business starts or a new source of income comes into existence, the previous year might be less than 12 months. However, the next financial year will be the entire 12 months (April to March).
Given below are exceptions for taxation of income earned in the previous year:
Section 172 of the Income Tax Act has incorporated guidelines for a Non-Resident Indian’s shipping business.
Given below are its important features:
Section 174 of the Income Tax Act is applicable if an Assessing Officer feels that an individual might leave India in the present assessment year or thereafter.
Critical features of this Section are enumerated below:
Section 174A of ITA is applicable for bodies that are formed for a short period.
Its important feature is given below:
Section 175 of ITA is applicable for people who are most likely to transfer their properties to evade tax.
Given below is its important feature:
Section 176 of the Income Tax Act is for charging tax on incomes of discontinued businesses.
Its essential feature is enumerated below:
The table below provides key differences between the previous year and the assessment year:
|Criteria of Comparison||Previous Year (Financial Year)||Assessment Year|
|Definition||The year when an individual earns income||The year when I-T authorities assess the income|
|Financial Year||12 months or less||12 months|
|Time||12 months or less, depending upon when the income source started/stopped operating||12 months|
|Purpose||Important because the income is earned in this year. Therefore the data collected will be from this year||Significant in analysing the submitted data and calculating the appropriate tax payable|
The previous year in Income Tax is an essential concept that every individual should be aware of. Income earned in the previous year is taxable during the assessment year. The Indian government has carefully formulated the rules and guidelines of the Income Tax Act to promote transparency and curb tax.
There are many ways one can reduce taxes on income. Some of them are as follows:
1. Investments in Municipal Bonds
2. Beginning of a side-business
3. Buying health insurance plans
4. Investments in mutual funds (ELSS) and real estate
The National Pension Scheme (NPS), is a low-risk investment plan for retirement. It has many associated tax benefits. For example, employees can claim a tax deduction for 10% of the NPS contribution. In addition, self-employed taxpayers can claim deductions of up to 20% of their gross income or Rs. 1.5 lakh, whichever would be lower.
There are many tax saving options mentioned in different IT Act sections apart from Section 80C. According to Section 80D of ITA, one can seek deductions for payment of medical insurance premiums. According to Section 80EE, individuals can claim tax deductions for interest paid on home loans.
Income Tax Act enables many tax benefits for senior citizens. The money that elderly parents receive as gifts from their children is tax-free. They can invest this money through various schemes which provide tax benefits. However, your parents should have a lower income.
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
|Section 112A||Section 50||Section 245|
|Section 80QQB||Section 32AD||Section 250|
|Section 35D||Section 143 (1a)||Section 115BAB|
|Section 143||Section 79||Section 140A|
|Section 17(2)||Section 3||Section 94A|
|Section 147||Section 80||Section 40A|
|Section 48||Section 115AD||Section 14A|
|Section 45||Section 285BA||Section 6|
|Section 36||Section 87A||Section 80GGA|
|Section 244A||Section 234E||Section 28|
|Section 197||Sectio 548||Section 194J(1)(ba)|
|Section 145A||Section 80P||Section 92CD|
What is Form 26QB for TDS? How to Download and Submit it?While purchasing a property, buyers are liable to pay various taxes. The Finance Act, 2013 made TDS... Read More »
PF Withdrawal Rules 2023 – Rules, Documents Required and TypesEPF/PF Withdrawal Employees’ Provident Fund (abbreviated as EPF) is a popular retirement sav... Read More »
Stamp Duty and Property Registration Charges in Delhi 2023It is compulsory for property buyers in the Capital to pay stamp duty in Delhi during property regi... Read More »
Income Tax Return – Documents, Forms and How to File ITR Online AY 2023-24In India, it is mandatory for all taxpayers who earn more than the basic tax exemption limit to fil... Read More »
What is Section 80CCD – Deductions for National Pension Scheme and Atal Pension YojanaThe Income Tax Act provides a number of deductions and tax benefits to taxpayers, so they can strat... Read More »
Tax on Dividend Income: Sources, Tax Rate and TDS on dividend incomeWhat are Dividends? Companies may raise funds for running their operations by selling equity. Th... Read More »
Section 112A of Income Tax Act: Taxation on Long-Term Capital GainsWhat is Section 112A? Section 112A of the Income Tax Act was announced in Budget 2018 to replace... Read More »
Section 206AB of Income Tax Act: Eligibility And TDS RateSection 206AB was introduced in the Finance Bill 2021 as a new provision pertaining to higher deduc... Read More »
What is a Credit Note in GST – Example, Format and StepsA GST Credit Note is mandatory for any GST-registered supplier of goods or services. As a supplier,... Read More »
Exemptions and Deductions Under Section 10 of Income Tax ActWhat Is Section 10 of the Income Tax Act? Section 10 of the Income Tax Act, 1961 provides tax-sa... Read More »
Section 57 of the Income-tax Act – Income from Other SourcesIt is quite likely that many entities - individuals as well as businesses - have multiple sources o... Read More »