Income Tax Queries

In India, the Income Tax Act, 1961 requires every individual, with an annual income over the minimum exemption limit, to file Income Tax Returns (ITR).  An ITR is basically a document that contains a breakdown of different sources of income, which includes your salary, dividend income and income from house property. Income tax deductions, if applicable, are also claimed with the ITR. The structure of an income tax return differs for different assessees.

Who is an Income Tax Assessee?

An assessee is a person mandated to file income tax returns and eligible for income tax assessment. For the purpose of income tax assessment, a person may be a natural person, which is an individual, or an artificial entity, which implies an organization. Besides, two or more individuals, having a joint income, are taxed as a ‘firm’ or ‘association’, and not as individuals. Broadly, assessable entities under the Income Tax Act, 1961 are:

• An individual
• A public corporation
• A private firm
• A Hindu Undivided Family
• A local authority

The tax assessment laws of these assesses differ from one another. The underlying principal of tax assessment, however, remains that income tax will only be charged when the income of an assessee exceeds the exemption limit set by the government. Also, in an individual’s case, the tax assessment is affected by the status of the individual. Here, the status of an individual implies whether s/he is a resident or non-resident.

What is the Difference between a Resident and a Non-Resident?

Not all individuals, having an income over the exemption limit, are taxable in India. This is where the concept of residents and non-residents arises. While residents are fully taxable for income earned within and outside the country, non-residents are fully exempt from both. Remember, a resident for the purpose of tax assessment, is not a person who is born in India or has an Indian citizenship, but one who has stayed in India for at least:

• 182 days during the tax assessment year or
• 60 days during the current assessment year and 365 days through the previous four years.

Individuals who do not fulfill either of the conditions are judged as non-residents for tax assessment. Remember, the laws concerning residential status are more relaxed for Indians residing or employed abroad.