A tax liability that a company has to pay but does not pay at that current point and it will be responsible for paying it in future is termed a deferred tax. Deferred tax occurs due to the difference in a company's balance sheet, due to the differences between accounting practices and tax regulations.
Differentiate between Financial Year, Assessment Year and Previous Year?
Assessment year and previous year are the types of financial year which consists of twelve months starting from 1 April to 31 March. Previous financial year is the preceding year of assessment financial year.
A “person” means an individual, an ordinary partnership, a non-juristic body of person and an undivided estate. The term "person" under the Income Tax Act includes an individual, a Hindu Undivided Family, a Company, a Firm, an Association of Persons, a Local Authority and Artificial Juridical persons.
Who is an assessee?
An "Assessee" is a person who is liable to pay tax or any other sum of money under the Act.
It includes
1. Every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or of the income of any other person in respect of whom he is assessable, or of the loss sustained by him or by such other person, or of the amount of refund due to him or to such other person;
2. Every person who is deemed to be an assessee under any provision of this Act;
3. Every person who is deemed to be an assessee in default under any provision of this Act.
Does the tax liability of an individual get affected due to his residential status? If yes, explain.
Yes, tax liability of an individual does gets affected due to his residential status as per Section % of the Income Tax Act 1961 and is also dependent on place and time of accrual or receipt of income. You must understand the difference between Indian income and Foreign income as Indian income is always taxable in India in accordance with the residential status of the taxpayer.
Indian income is categorized as
1. Income received or deemed to be received in India during previous year and simultaneously accrual income or deemed accrual in India during previous year.
2. Income received or deemed to be received in India during the previous year but it accrues outside India during the previous year, or Income received outside India during the previous year but accrues in India during the previous year.
What are the basic and additional conditions for Resident and ordinarily resident (ROR)?
The basic conditions for being resident and ordinarily resident is the same condition that satisfies the residential status of an individual and additional conditions for Resident and ordinarily resident in India in a given previous year are mentioned below:
1. If you are resident in India in at least 9 out of 10 previous years as per the basic conditions that satisfies the residential status of an individual preceding the relevant previous year.
2. If you are in India for a period of at least 730 days during 7 years preceding the relevant previous year.
3. An individual or HUF becomes ROR in India if the individual fulfills at least one of the basic conditions that satisfies the residential status of an individual both the additional conditions.
Who are resident but not ordinary resident?
A resident but not ordinary resident is the one who is not the resident in India for 9 out of the 10 preceding previous years or he has during the 7 preceding years been in India for a period of, or period amounting to 729 days or less.
Who are non resident?
An individual who does not fulfill the below mentioned conditions in that previous year will be considered as Non Resident:
1. You have to be in India atleast 182 days in that year, OR
2. You have to atleast be in India for 365 days during 4 years preceding that year and atleast 60 days in that year.
Which income is considered as accrued income?
Income which has been earned but not yet received is known as accrued income. Income is recorded in the same accounting period in which it is earned rather than in the subsequent period in which it will be received.
What is FBT?
1. FBT stands for Fringe Benefit Tax which is a tax that an employer has to pay in respect of the benefits that are given to his/her employees.
2. Fringe benefits is something that an employer provides to his employees in addition to the cash salary. FBT is payable in lieu of the value of fringe benefits provided or deemed to have been provided by an employer to his employees during the previous year.
What is tax audit?
A tax audit is assessment of an organization's or individual's tax return by Internal Revenue Service (IRS) in order to find out that the income and deductions are recorded accurately.
What is Tax refund?
The excess tax paid by an individual than the actual owed is returned by the government which is known as tax refund. After taking into consideration income tax, withholdings, tax deductions or credits and other factors; you file income tax for the year, after that you will receive a tax refund.
What do you understand by total income?
Total Income is the amount on which the Income Tax is paid. Total income include all income that accrue, arise, earned or received in India (except those income which accrues or arises outside India). Total Income is the total amount earned by an individual or organization, including income from employment or providing services, revenue from sales, payments from pension plans, income from dividends, or other sources. Total income is generally calculated for the assessment of taxes, evaluating the net worth of a company, or determining an individual or organization's ability to make payments on a debt.
How many heads are there under total income? Name them.
There are five heads under total income:
Income from Salaries
Income from house property
Profits and gains of business or profession
Capital gains
Income from other sources
At what rate firms are required to pay tax on their income?
Income Tax is paid at 30% of taxable income. Surcharge is charged at 10% of the Income Tax, where taxable income is more than Rs. 1 crore. (Marginal Relief in Surcharge, if applicable) and Education Cess is 3% of the total of Income Tax and Surcharge.
How will you decide the residential status of an individual?
As per the provisions of Income Tax Act residential status of an individual is categorized as Resident and Non Resident.
Under Section 6(1), an individual is said to be resident in India in any previous year if he satisfies any one of the following basic conditions:
1. He is in India in the previous year for a period of at least 182 days.
2. He is in India for a period of at least 60 days during the relevant previous year and at least 365 days during the four years preceding that previous year.
The above provisions are applicable only to those who are residents of India irrespective of their nationality otherwise they are included in Non resident.
What is capital gain? Explain long term capital gains and how is it different from short term capital gains?
1. Capital gains' means the profit earned from the sale of an asset. When the Capital Asset is being sold or transferred, the profit or gains arising out of it or you can term that as the difference between the actual price at which the asset was acquired and the price at which it is sold or transferred.
2. A long-term capital gain is the profit that arises with the sale of an asset that has been on hold for a definite period. This period ranges from one year to three years across different asset classes.
3. It is different from short term capital gains because short term capitals are kept for short period only that is less than a years.