Commerce Terms

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 Assessee: Person liable to pay tax or involved in tax proceedings.

Types of Assessee:

  • Individual
  • Hindu Undivided Family (HUF)
  • Company
  • Firm
  • Association of Persons (AOP)
  • Body of Individuals (BOI)
  • Local Authority
  • Artificial Judicial Person

Tax: Compulsory government levy on income, goods, or services.

Income Tax: Tax on individual or entity income.

Features of Income Tax:

  • Direct tax
  • Progressive rates
  • Annual levy
  • Based on income sources
  • Administered by CBDT

Tax Evasion: Illegal reduction of tax liability (e.g., hiding income).

Tax Planning: Legal use of tax provisions to minimize liability.

Tax Avoidance: Legal but aggressive tax reduction (e.g., exploiting loopholes).

Tax Evasion vs. Tax Avoidance:

  • Evasion: Illegal, fraudulent; Avoidance: Legal, within law.
  • Evasion: Hiding income; Avoidance: Structuring transactions.
  • Evasion: Penalized; Avoidance: May face scrutiny.

Person: Includes individual, HUF, company, firm, AOP, BOI, local authority, artificial judicial person.

Previous Year: Financial year in which income is earned.

Assessment Year: Year following previous year when income is assessed.

Situation Where Assessment Year = Previous Year: No such case; assessment year always follows previous year.

Exception: New business/profession setup; income from first year assessed in next year.

Residential Status:

  • Resident: 182+ days in India or 60+ days + 365+ days in prior 4 years.
  • Non-Resident: Not meeting resident criteria.
  • Resident but Not Ordinarily Resident (RNOR): Resident but not 2/10 years resident or 730+ days in prior 7 years.

Exempted Incomes:

  • Agricultural income
  • Gifts up to ₹50,000
  • HRA (specific conditions)
  • LTCG on certain assets
  • Interest on tax-free bonds

Surcharge Tax: Additional tax on high-income earners (e.g., 10-37% on income above ₹50 lakh).

Salary: Payment for services under employment contract.

Salary Components:

  • Basic salary
  • Allowances
  • Perquisites
  • Bonuses
  • Provident Fund contributions

Provident Fund:

  • Definition: Retirement savings scheme.
  • Types: Statutory PF, Recognized PF, Unrecognized PF, Public PF.

Allowance: Fixed payment for specific purposes.

Types of Allowance:

  • Fully taxable: Dearness, City Compensatory.
  • Partially taxable: HRA, Entertainment.
  • Fully exempt: Foreign, Tribal Area.

Perquisites: Non-cash benefits (e.g., car, housing).

Sumptuary Allowance: Allowance for official entertainment (often exempt).

Gratuity: Payment for long-term service; exempt up to ₹20 lakh (conditions apply).

Pension: Post-retirement payment; taxable unless commuted (partially exempt).

Rent-Free Accommodation: Employer-provided housing; taxable as per valuation rules.

HRA: House Rent Allowance; exempt up to least of: actual HRA, rent paid - 10% salary, or 40-50% of salary.

Rent-Free Value: Taxable value of accommodation based on population, salary, and fair rent.

Leave Encashment: Payment for unused leave; exempt for government employees, up to ₹25 lakh for others.

Profit in Lieu of Salary: Payments like compensation for job loss; taxable.

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