Income Tax in India: Complete Beginner's Guide

What income tax in India is charging

Income tax is charged on income, not on the cash that happens to sit in a bank account on 31 March. A salary credited in March, interest accrued for the year, and a gain on shares sold in January can all belong in the same previous year even when the money arrives on different dates. The working paper starts by listing receipts and asking which of them the Act treats as income for that year.

The charge is on a person: an individual, a Hindu undivided family, a firm, a company, or another person the Act recognises. A private limited company and its shareholder are different persons. Mixing their bank statements produces a return the portal will still accept and the law will still treat as wrong. Keep a cover sheet that names the person, the permanent account number, and the residential status conclusion before any figure is totalled.

Previous year and assessment year

The previous year is the period in which the income is earned. The assessment year is the following year, in which that income is assessed and the return is filed. The e-filing utility on the Income Tax Department portal asks for the assessment year first. Choosing the wrong year loads the wrong prefill, the wrong form instructions, and the wrong rate schedule.

For most taxpayers the previous year runs from 1 April to 31 March, and the assessment year is the next 1 April to 31 March. Write both labels on the file: "previous year" for the books, "assessment year" for the return. The Department publishes the year you may file for on https://www.incometax.gov.in/. Copy the label from that page when a new Finance Act opens.

When the year is not the ordinary cycle

A new business, a person leaving India, or a non-resident can have a previous year that is shorter than twelve months, or a residential-status test that does not match a colleague's. Those cases use the statutory tests for that year, with passport and incorporation evidence attached. A standard April-to-March template is the wrong cover sheet until you have checked that the ordinary cycle applies.

Why last year's diary misleads

Slabs, rebate thresholds, and which deductions survive are rewritten in the Finance Act. A computation that was correct for the last assessment year is a template, not a result. Rebuild the rate step from the official rate page for the assessment year on the return. The same habit applies to the filing calendar: read the date the portal shows for this return.

Heads of income, in computation order

Income is computed head by head, then aggregated. The heads practitioners meet every day are salary, income from house property, profits and gains of business or profession, capital gains, and income from other sources. Each head has its own exemptions, its own expenses, and its own schedule in the return. A dividend and a salary are not "other income" in the same working paper just because both hit the same bank account.

Set-off of a loss under one head against income under another follows rules that differ by head and by year. A capital loss does not automatically reduce salary. Record the loss, the year it arose, and the head it belongs to, and apply only the set-off the form permits for that assessment year. The course drills this order before it opens a form.

Residence decides what enters the total

An individual's residential status for the previous year decides whether foreign income is in the Indian total. Status is a day-count and exception test in the Act, proved from passport stamps and travel records, not from citizenship or from where the family lives. The day thresholds and the deemed-resident rules have been amended by Finance Acts. Count the days, then read the test for that previous year on the official text. Do not reuse a number from a classroom slide.

Companies and firms use different residence tests from individuals. If the file is a company, stop and use the corporate test. A shareholder's residential status does not migrate onto the company's return. Where the person also runs a GST registration or a new company, keep those facts on a side memo. answers a different question from this return.

A first salary year, as a file

Take a resident employee who joined in June, received salary from one employer, earned interest on a savings account, and sold no shares. The file has four stacks: appointment letter and monthly payslips, the employer certificate of tax deducted, the bank interest certificate, and the annual information and tax-credit statements on the e-filing portal. Salary goes to the salary head. Interest goes to other sources. There is no capital-gains schedule and no business schedule until a document creates one.

Tax deducted by the employer is a credit against tax computed, not a reduction of salary income. The return computes tax on the heads, then subtracts the credit. If the credit exceeds the tax, the difference is the refund the processing centre will consider after you verify the return. Walk the same file through and before anyone chooses a form.

Checklist before the return is opened

Complete this on paper before a login. 1. Name the person and write the permanent account number exactly as the card shows. 2. State the previous year and the assessment year. 3. Conclude residential status from a day log, or mark the test as still open. 4. List each head that has a document, and each head you considered and left empty. 5. Match tax deducted on certificates to the tax-credit statement. 6. Choose the regime only after both computations exist. 7. Copy the filing date from the portal for this assessment year.

When that page is signed, move to and then . Tax deducted at source is a credit story of its own; start it at if the file has an employer or a client who deducted tax.