Income tax

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Abhinav (Querist)
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16 October 2012 Why is the income earned in the previous year,assessed in the next year? what if all the income that one has earned is spent?what if the person has no tax to pay?

its just a general question,i keep wondering.

CA C.JANANI

CA C.JANANI (Expert)
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16 October 2012 Good question but not at the right time when Govt is proposing to make payment of tax a fundamental duty.

There are others in the country without any income hence as citizens we have to allocate a portion towards tax. If forgotten, better remember and earn next year and pay with penalty.

Abhinav

Abhinav (Querist)
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16 October 2012 And how exactly is it paid? what are the contents of return of income tax?

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Asha Kanta Sharma

Asha Kanta Sharma

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31 July 2024 ### Income Earned in Previous Year Assessed in Next Year

The income earned in the previous year (referred to as the "Previous Year" or "PY") is assessed in the next year (referred to as the "Assessment Year" or "AY") for several reasons:

1. **Practicality**: It allows individuals and businesses time to gather and compile their financial data, ensuring accurate reporting.
2. **Financial Statements**: Most businesses and taxpayers need time after the end of the financial year to close their books and prepare financial statements.
3. **Legal Framework**: Tax laws are designed to provide a uniform period for all taxpayers to assess and report their income, ensuring consistency and fairness.

### What If All Income is Spent?

Spending all the income earned does not affect the tax liability. Tax is calculated based on income earned, not on how it is spent. If a person spends all their income, they still need to report it and pay any applicable taxes based on their income.

### What If There Is No Tax to Pay?

If a person's total income is below the taxable threshold after considering deductions and exemptions, they may not have any tax liability. However, they may still need to file a tax return, especially if:

1. They have income from which tax has been deducted at source (TDS).
2. They wish to claim a refund for any TDS deducted.
3. They need to report their income as per legal requirements (e.g., for loan applications, visa processes, etc.).

### Payment of Taxes

Taxes can be paid through various methods:

1. **Advance Tax**: Paid in installments throughout the financial year if the estimated tax liability exceeds a certain amount.
2. **Self-Assessment Tax**: Paid before filing the income tax return if there is any remaining tax liability after adjusting for TDS and advance tax.
3. **Regular Assessment Tax**: Paid after receiving a demand notice from the tax department.

### Contents of Income Tax Return

The return of income tax (ITR) typically includes the following:

1. **Personal Information**: Name, PAN, address, contact details, bank account details, etc.
2. **Income Details**:
- Income from Salary
- Income from House Property
- Income from Business or Profession
- Capital Gains
- Income from Other Sources (e.g., interest, dividends)
3. **Deductions and Exemptions**: Details of deductions under various sections like 80C, 80D, etc., and exemptions such as HRA, LTA, etc.
4. **Tax Computation**: Calculation of total income, taxable income, tax payable, and tax paid.
5. **Tax Payments**: Details of advance tax, self-assessment tax, and TDS.
6. **Verification**: Declaration by the taxpayer that the information provided is accurate and complete.

### Steps to File an Income Tax Return

1. **Collect Information**: Gather all necessary documents like Form 16, bank statements, investment proofs, etc.
2. **Choose the Correct ITR Form**: Depending on the nature of income, select the appropriate ITR form.
3. **Fill the Form**: Enter all the details related to income, deductions, tax paid, etc.
4. **Calculate Tax Liability**: Calculate the total tax payable based on the information provided.
5. **Pay Any Due Tax**: Pay any remaining tax liability if applicable.
6. **Submit the Return**: File the return online through the income tax e-filing portal or offline by submitting the physical form.
7. **Verification**: Verify the filed return either electronically using Aadhaar OTP, net banking, or by sending a signed physical copy of the ITR-V to the Income Tax Department.

Filing an income tax return ensures compliance with tax laws, helps in keeping financial records in order, and can be useful for financial planning and documentation purposes.