PREVIOUS YEAR AND ASSESSMENT YEAR

Transcription

1

2 PREVIOUS YEAR AND ASSESSMENT YEAR In this topic we will learn 1) Meaning and relevance of previous year and assessment year 2) Cases when income of the previous year is taxed in the same year itself 3) Previous year for undisclosed sources of income

3 MEANING OF PREVIOUS YEAR AND ASSESSMENT YEAR Income Tax Act doesn't follow the calendar year (i.e. Jan to Dec). For the purposes of Income Tax Act, the year begins on 1st of April and ends on 31st of March. Previous year: Previous year is the year in which income is earned. Thus income of the P.Y means income from the period 01/04/2011 to 31/03/2012.Income of P.Y means income from the period 01/04/2012 to 31/03/2013 and so on.

4 All persons irrespective of their status(individual, HUF, Company etc.) and source of income have to follow a uniform previous year.(01/04 to 31/03).Even if he maintains his books of accounts on calendar year basis (Jan. to Dec.),for income tax purposes,period from 01/04 to 31/03 will be considered.

5 However, in case a business or profession is newly set up, then the previous year will be from the date of setting up the business till 31st of March. e.g.. If Mr. X starts a business on 15th July 2012, then the P.Y. will be from 15/07/2012 to 31/03/2013. Similarly, if a source of income newly comes into existence during a particular financial year, then the previous year will be from the date when the source of income comes into existence till the 31st of March.

6 Assessment Year - Sec. 2(9) Assessment Year is the year in which income is assessed or checked. It is the period of twelve months beginning from 1st of April and ending on 31st of March every year. Income of every previous year is taxed in the immediately succeeding year called as Assessment year. So when we refer to Income of A.Y ,we mean the income of P.Y i.e. income from 01/04/2011 to 31/03/2012.

7 Similarly, income of A.Y means income of the P.Y i.e. income from 01/04/2012 to 31/03/2013.Thus the period from 01/04/2013 to 31/03/2014 is called A.Y in respect of P.Y Section 3 rightly defines the previous year as the financial year immediately preceding the assessment year.

8 CASES WHEN INCOME OF THE PREVIOUS YEAR IS TAXED IN THE SAME YEAR ITSELF Normally, income earned during any previous year is assessed or charged to tax in the immediately succeeding year called as assessment year. However in the following cases, income is assessed or charged to tax in the same previous year of earning the income. Thus, previous year and assessment year are the same in the following exceptional cases:

9 1)Income of a nonresident from shipping business -Sec 172 If a ship belonging to or chartered by a nonresident carries passengers,livestock, mail or goods shipped at any port in India, the ship is allowed to leave the port only if tax has been paid or satisfactory arrangements have been made for payment of tax. Thus the previous year may not be over but income earned up to the date of the departure of the ship is taxed in that previous year itself. The nonresident is bound to submit the details of revenue collected from India before the ship leaves the Indian port.7.5% of the revenue collected is deemed to be the income and tax is levied accordingly on this income.

10 2)Income of a person permanently leaving India -Sec 174 If it appears to the Assessing Officer that an Individual may leave India permanently during the current assessment year or shortly after its expiry, then the total income of such individual up to the date of such departure from India will be charged to tax in that year itself.

11 For e.g. Eg. If Mr. X is leaving India permanently say on ,then the assessing officer will assess the income as follows : 1) Income of the P.Y i.e from 01/04/2011 to 31/03/2012 will be taxed as usual in the A.Y at tax rates applicable to the relevant A.Y. i.e tax rates applicable for A.Y )Income from 01/04/2012 to 01/08/2012 (on estimated basis) will be taxed in advance and will also be assessed in the year Since the tax rates for the A.Y are available on the basis of the Finance Bill 2012 (Budget 2012),they will be applied on the same income and tax will have to paid and income will be assessed in itself.

12 3)Income of AOP/BOI/Artificial Juridical Person formed for a very short duration -Sec. 174A If it appears to the Assessing Officer that the above entities are formed for a very short duration and are likely to be dissolved in the assessment year or shortly thereafter, then the total income of such entity upto the date of its dissolution will be chargeable to tax in that year itself.

13 E.g. an AOP is formed for any one particular project which starts on and ends on and if the AOP gets dissolved after the project, then income from to will be assessed in itself.

14 4) Persons likely to transfer property to avoid tax - Sec.175 If it appears to the Assessing Officer that a person is likely to charge, sell, transfer, dispose of or part with any of his assets to avoid payment of tax, then the total income of such person from the commencement of the assessment year till the date of commencement of assessment proceedings shall be charged to tax in the same assessment year.

15 E.g. If the Assessing officer comes to know in Jan that Mr. X is likely to sell his asset to avoid tax, then the Assessing officer will issue a notice say in Jan 2013 and income from April 2012 to Jan 2013 will be taxed and assessed in itself.

16 5) Income of a Discontinued Business If any business or profession is discontinued in any particular assessment year, the income from the commencement of the assessment year till the date of such discontinuation may be taxed in that assessment year only. This is at the discretion of the Assessing Officer. Alternatively,the Assessing Officer may tax the income of that year in the next assessment year (as per normal course without treating it as an exception).

17 For e.g. Mr. X discontinues his business on Now the Assessing Officer has two choices 1)As per normal course of proceedings, he may wait for P.Y to get over and tax it in the next year i.e. A.Y )However he also has the power to disregard the next year and tax income from to in that P.Y. itself. Thus in the first 4 situations, it is mandatory that income of a previous year be taxed in that year itself. However in the last situation, it is at the option of the Assessing Officer.

18 SHIP LEAVES INDIA FOR SHORT DURATION TO TRANSFER PROPERTY OF A DISCONTINUED BUSINESS SHIP LEAVES INDIA FOR SHORT DURATION TO TRANSFER PROPERTY OF A DISCONTINUED BUSINESS Shipping business of a nonresident Persons leaving India indefinitely AOP/BOI formed for a very short duration Persons transferring prop. to avoid tax Income of a discontinued business

19 PREVIOUS YEAR FOR UNDISCLOSED SOURCES OF INCOME There are some occasions during which the Assessing Officer comes across certain bank entries, cash credits, expenses or investments the source of which cannot be explained by the assessee to the Assessing Officer. In such a case, those credits, expenses or investments will be treated as the income of the assessee in the previous year when detected.

20 Sec. 68 Cash Credit If any sum is found credited in the books of accounts of the assessee for which no explanation is found or the explanation found is unsatisfactory, then such amount shall be deemed to be the income of the assessee of the previous year in which such cash credit is found.

21 For eg., if in the P.Y ,an amt. of say Rs. 10 lacs is found credited in the bank a/c of Mr.X. Now Mr. X is unable to explain or prove the source of this amount. In that case the entire 10 lacs will be taken as income of Mr. X for the P.Y

22 In case of a closely held company, if the sources of funds credited as share capital, share premium etc. in its books cannot be explained to the satisfaction of the Assessing Officer, then it would be treated as the taxable income of the company and added to its total income.

23 For eg. ABC Pvt. Ltd. has raised share capital to the extent of 20 lacs in the P.Y The amt. is credited in the bank but details of the sources and the shareholders cannot be furnished to the satisfaction of the Assessing Officer.In this case,the entire 20 lcas will be taken as the income of the company in the P.Y

24 Sec. 69 Unexplained Investments If there is any investment made by the assessee which is not recorded in books of accounts and for which no explanation as to the source of such investment is furnished by the assessee,then the amount of this investment will be taken as the income of the P.Y. in which such investments are made.

25 For eg. Mr. X has purchased a house for say 50 lacs on ,however he is unable to explain the source of 50 lacs.,in that case assuming 50 lacs is his undisclosed income,50 lacs will be taxed as income in the P.Y. in which house is purchased.

26 Sec 69A Unexplained Money Where an assessee is found to be the owner of any money,bullion,jewellery or other valuable article not recorded in the books of accounts and for which no explanation or satisfactory explanation is furnished by the assessee, then the value of such items will be deemed to be the income of such previous year.

27 For eg. the assessee is found in possession of gold worth Rs. 50 lacs but not recorded in the books.the assessee is also unable to explain the source of 50 lacs.then the entire 50 lacs will be taken as income of the P.Y. in which gold is found in.

28 Sec 69B Amount of Investments not fully disclosed in books of accounts Where in any financial year,the assessee has made investments or is found to be the owner of any bullion,jewellery or similar valuable items and the Assessing Officer finds out that the amount spent on the investments or valuable articles exceeds the amt. recorded in books of accounts maintained by the assessee and the assessee offers no explanation for the difference or the explanation offered is unsatisfactory,then such difference will be deemed to be the income of such previous year.

29 For eg. In the above eg (Sec 69A),assessee was found to be in possession of gold worth 50 lacs not recorded in books. Now suppose the assesssee had recorded the purchase of gold worth 30 lacs.now in this case gold worth 20 lacs is not recorded and if the assessee can't offer any satisfactory explanation regarding the source of this 20 lacs, then 20 lacs will be taken as the income of the P.Y. when gold is found.

30 Sec 69C Unexplained Expenditure Any expenditure incurred by the assessee, the source of which is not explained will be taken as the income of the assessee in the P.Y. in which the expenditure is incurred. It has also been provided that such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income.

31 For eg.in the P.Y , the assesse has claimed a business expenditure of say Rs. 5 lacs. However,the source of this expenditure can't be explained by him.then this exp. will be deemed to be the income of the P.Y. when incurred. i.e. income of P.Y

32 Sec 69D Amount borrowed or repaid on Hundi(i.e just like Bills of exchange or Promissory notes) Where any amount is borrowed on a hundi or any amount due thereon is repaid to any person otherwise than through account payee cheque, then the amount so borrowed or repaid shall be deemed to be the income of the person borrowing or repaying it.the amount repaid shall include the interest paid on such amount. To avoid double taxation it has been provided that if any amount borrowed on hundi has been deemed to be the income of the person in a particular previous year, then repayment of such amt. (otherwise than through account payee chq) will not be taxed as income again in the hands of such person.

33 For eg.mr. X borrowed Rs. 20,000/- on hundi by account payee chq. on The same was repaid in cash along with interest of Rs. 2,000/- on When loan was borrowed, it was by account payee chq.so no question of taxing it as income.however when it is repaid in P.Y , it is by way of cash.hence the entire 22,000/-(loan and interest) will be taken as income of P.Y

34 Sec 115BBE :The above incomes will be taxed at a flat rate of 30% without allowing any deduction under Chapter VIA or without considering minimum exemption limit.

35 1) Income of a shipping business for the P.Y of Mr.X a resident will be taxed in the 1) P.Y itself 2) A.Y ) A.Y ) P.Y

36 Answer : 2)A.Y (Exception of taxing income in the same P.Y. applies only to shipping business of a non resident)

37 2) Mr. X is leaving India on for a six month visit to America.Income from to will be taxed/assessed in the 1)P.Y )A.Y )A.Y )None of the above

38 Answer 2)A.Y (Exception of taxing income in the same P.Y. applies only to those assessees who leave India for an indefinite period of time)

39 Q.3. In the bank account of Mr. X., on there is an amt. credited to the extent of 50 lacs which Mr.X claims that its a loan from his friend.however the friend doesnot give any confirmation as regards the same.in this case: 1)Mr. X will have to repay the loan back to his friend 2)Friend will have to pay tax on 50 lacs. 3)50 lacs will be spread as income of Mr. X over the last 5 years. 4)50 lacs will be taken as income of Mr. X for the P.Y

40 Answer 4)50 lacs will be taken as income of Mr. X for the P.Y (unexplained cash credits taxed as income)

41 Q.4.Undisclosed Income is taxed 30% 20% 3) slab rates applicable 15%

42 Answer 30%

43 Q.5.Income of a discontinued business 1) is always taxed in the next year i.e. assessment year 2) is always taxed in the same year itself 3) may be taxed in the same year or the next year at the discretion of the Assessing Officer 4) may be taxed in the same year or the next year at the discretion of the Assessee

44 Answer 3)may be taxed in the same year or the next year at the discretion of the Assessing Officer

45