Question 1

What do you mean by Income Tax

Accepted Answer

Answer: Income Tax is a direct tax levied by the Government of India on the total income earned by individuals, businesses, and other entities during a financial year. It is governed by the Income Tax Act, 1961, which lays down the rules for chargeability, computation, and collection of taxes. The tax is collected to fund public infrastructure, defence, and various social welfare programmes. Every person whose taxable income exceeds the basic exemption limit must file an income tax return (ITR) and pay applicable taxes.

Question 2

What is the time frame for which a person's income is considered for calculating the Income-tax by the government?

Accepted Answer

Answer: The government considers the income earned during a Financial Year (FY) for calculating income tax. In India, the financial year begins on 1st April and ends on 31st March of the following year. This 12-month period is also referred to as the “Previous Year” under the Income Tax Act. For example, income earned between 1st April 2025 and 31st March 2026 will be taxable for the assessment year 2026-27.

Question 3

What does it mean by Assessment Year?

Accepted Answer

Answer: An Assessment Year (AY) is the 12-month period immediately following the financial year (previous year), during which the income of that previous year is assessed and taxed. It starts on 1st April and ends on 31st March. For instance, if your financial year is 2025-26, the corresponding assessment year will be 2026-27. It is during the assessment year that taxpayers file their income tax returns and the tax department evaluates the income declared.

Question 4

Who should pay Income Tax in India?

Accepted Answer

Answer: As per the Income Tax Act, 1961, the following categories of persons are liable to pay income tax in India if their income exceeds the prescribed exemption limit:

Individuals (resident or non-resident)
Hindu Undivided Families (HUF)
Partnership Firms (including LLPs)
Companies (Private, Public, and Foreign)
Association of Persons (AOP) and Body of Individuals (BOI)
Local Authorities (municipalities, panchayats, etc.)
Artificial Juridical Persons (trusts, deities, etc.)

Each category is subject to specific tax rates, deductions, and compliance requirements under the Act.

Question 5

Does the Income-tax Act apply to only Indian residents?

Accepted Answer

Answer: No, the Income Tax Act applies to both resident and non-resident individuals and entities. However, the scope of taxation varies based on residential status. Residents are taxed on their global income (income earned anywhere in the world), whereas non-residents are taxed only on the income that is earned, accrued, or received in India. Therefore, even foreign citizens earning income from Indian sources are subject to Indian income tax laws.

Question 6

Is Income tax Act applicable only to residents?

Accepted Answer

Answer: No, the Income Tax Act is not limited to residents alone. It applies to all “persons” as defined under Section 2(31) of the Act, which includes individuals, companies, firms, and associations, regardless of their citizenship or place of residence. The key difference lies in the taxability of income – residents are taxed on their worldwide income, while non-residents are taxed only on income that is sourced or received in India.

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