Introduction to Income Tax Very Short Answer Type Questions

Question 1.
What is Income Tax and which is the supreme authority in framing the Income Tax Rules?
Answer:
Income tax is a direct tax lived by the Central Government. The Central Board of Direct taxes and the Ministry of Finance are the supreme authority in forming the IT rules.

Question 2.
Define tax.
Answer:
It is compulsory levy under certain conditions and it is meant for the general purposes of the state. Taxes are of two types, viz. Direct Tax and Indirect Tax.

Question 3.
What is direct tax?
Answer:
It is a kind of tax where in incidence and impact is on the same person. ‘Incidence’ means liability to pay tax to the Government and ‘Impact’ means burden of paying the tax.
Example – Income Tax, Wealth Tax etc.

Question 4.
What is indirect tax?
Answer:
It is a kind of tax where in ‘incidence’ and ‘impact’ is on two different persons.
Example – Excise Duty, Customs duty, VAT etc.

Question 5.
Distinguish between direct tax and indirect tax.
Answer:
→ In case of direct tax, the impact and incidence will be on the same person.
For example: Income tax

→ In case of indirect tax, the impact and incidence will be on different persons.
For example: customs duty, excise duty, sales tax etc.

Question 6.
Give the meaning of canons taxation.
Answer:
Cannons of taxation refer to the principles or rules laid down by economists and statesmen for guiding the taxing authority.

Question 7.
Mention the four canons of taxation according to Adam Smith.
Answer:
The four canons of taxation are:

  • Cannon of ability or equity
  • Cannon of economy
  • Canon of convenience
  • Canon of certainty

Question 8.
Define the term Assessment.
Answer:
In the Income-tax Act, the term Assessment is related to following combination.

  • Calculation of Total Income
  • Find out Tax liabilities
  • The tax payer including reassessment with procedure of imposing liability.

Question 9.
State the different types of assessement.
Answer:
The assessment are:

  • Self assessment
  • Assessment on the basis of returns
  • Regular Assessment
  • Precautionary Assessment

Question 10.
What do you mean by Re-Assessment?
Answer:
When the Income Tax officer has reasons to believe that an income chargeable to tax in an assessment year has escaped assessment, he may assess or reassers such income Such an assessment is called re-assessment.

Question 11.
What do you mean by Self Assessment?
Answer:
According to Sec. 140A, where any tax is payable on the basis of any return furnished under Sec., 139 or 148, the assessee is required to pay the tax together with interest
payable under any provision of the Act before filing of the return and the return is to be accompanied by the proof of such payment, i.e. chailan.

Question 12.
What is precautionary assessement?
Answer:
Where it is not clear as to who has received the income, the assessing officer can commence proceedings against the persons to determine the question as to who is responsible to pay the tax.

Question 13.
What do you mean by regular assessment?
Answer:
Under Sec. 143 (3) or best judgement assessment under Sec.144 when the assessing officer considers it necessary or expedient to verify the correctness of the return, to ensure that the income has not been under payed, he can serve a notice on day specified, any evidence on which the assessee may reply in support of the return.

Question 14.
What is an assessement year?
Answer:
Sec. 2(9) defines assessment year as the period starting from April 1st and ending on March 31st of the next year. Income of previous year of an assessee is taxed during the next following assessment year at the rate prescribed by the relevant Finance Act. For instance the assessment year 2020-21 which will commence on April 1st, 2019 will end March 31st, 2020. For 2020-21 assessment year, previous year income i.e. 2019-20 will be assessed.

Question 15.
What is previous year?
Answer:
According to Sec. 3, previous year means income earned in a year which is taxable in the next year. The year in which income is earned is known as previous year and the next year in which income is taxable is known as assessment year.

Question 16.
Distinguish between ”Assessment Year” and “Previous Year”.
Answer:

Assessment Year (Sec. 2(9) Previous Year (Sec. 3)
(i) Sec. 2(9) defines assessment year as the period starting from April 1st and ending on March 31st of the next year. For instances, the assessment year 2020-21 which will commence on April 1st, 2020 and will end on March 31st, 2021. (i) Previous year means financial Year immediately preceding the assessment year.
(ii) The year in which tax is paid is called assessment year. (ii) The year in respect of the income on which the tax is levied is called Previous year.

Question 17.
State the exemptions to the general rule that the income of the previous year is charged to income tax in the assessment year.
Answer:
Exceptions are:

  • Income of non resident from shipping business
  • Income of persons leaving India either permanently on for a long period of time
  • Income bodies formed for short duration
  • Income of discontinued business.

Question 18.
who is an assessee?
Answer:
Sec. 2(7) defines an assessee as a person by whom any tax or any other sum of money is payable under this act and includes –

  • Every person who is liable to pay tax under this act.
  • Deemed assessee.
  • Deemed to be an assessee in default.

Question 19.
Who. is an assessee in default?
Answer:
A Person who fails to do the work for which he is responsible under the IT Act is called an assessee in default.

Question 20.
Define the term person for income tax purpose.
Answer:
U/s Section2(31) defines a person as:

  • An individual
  • A hindu undivided family
  • A company
  • A firm
  • A Partnership Firm
  • An association of person or body of individuals whether incorporated or not.
  • A local authority
  • Any artificial or juridical person not falling under above category.

Question 21.
Different heads of income are:
Answer:

  • Income from salary
  • Income from House property
  • Income from Capital gain
  • Profits and gains from Business and Profession
  • Income from other sources.

Question 22.
What are casual income? Give an example.
Answer:
The income which is unexpected and in non recurring in nature is called casual income.
Example: Income from lottery.

Question 23.
Name any four examples for casual income.
Answer:
The four examples for casual income are:

  • Winning from lottery.
  • Income from cross word Puzzles and card games,
  • Tips given to taxi drivers,
  • Prize awarded for coin or stamp collection.

Question 24.
What do you mean by Gross total income?
Answer:
Gross total income is the total of the taxable income of ail the heads i.e., income from salary, house property, capital gain, business and Profession & other sources.

Question 25.
Give the meaning of total income.
Answer:
Total income means the amount left after making the deductions U/s 80C to 80U from the gross total income.

Question 26.
What is agricultural income?
Answer:
According to Sec 2 (1A) defines Agricultural Income as:
(a) Any rent or revenue derived from land which is situated in India and is used for agriculture purpose.

(b) Any income derived from such land by agriculture operations including processing of agriculture produce, raised or received as rent-in-kind so as to render it fit for the market or sale of such produce.

(c) Income attributable to a farm house subject to certain conditions.
Section 10(1) exempts agricultural income from income-tax.

Question 27.
What do you mean by capital receipts?
Answer:
A receipt which is not received regularly is known as capital receipt. In other words, a receipt which is non-recurring in anture is called capital receipts. For Example, (1) Issue of shares (2) Share premium received.

Question 28.
Answer:
The examples from capital receipts are as follows:

  • Sale proceeds of capital assets
  • Compensation received on the loss of fixed assets
  • Compensation recovered for nationalisation
  • Compensation received for compulsory valuation of a place of business

Question 29.
What is revenue receipt?
Answer:
The receipt which is recurring or regular in nature is known as revenue receipt. For example rent received, salary received etc.

Question 30.
State any four examples of revenue receipts.
Answer:
The examples of revenue receipts are

  • Lump sum received for waiver of royalty
  • Sale proceeds of goods
  • Annuities received periodically
  • Reward received by an employee from his employer in appreciation of his goods and services.

Question 31.
What is Capital Expenditure?
Answer:
An expenditure which increases the earning capacity of a fixed asset is a capital expenditure.

Question 32.
Give any four examples of capital expenditure.
Answer:
Some of the examples of capital expenditure are:

  • Cost of acquisition of a fixed assets
  • Cost of installation of fixed assets
  • Payment for the acquisition of goodwill of any business
  • Expenditure incurred to increase the revenue earning capacity of the business.

Question 33.
What is revenue expenditure?
Answer:
Any expenditure incurred in the regular course of business transaction of a firm in an accounting year is known as revenue expenditure.

Question 34.
State any four examples of revenue expenditure.
Answer:
Some of the examples of revenue expenditure are:

  • Cost of goods bought for resale
  • Expenses connected with purchase of goods
  • Expenditure incurred for maintaining fixed assets used in a business.
  • Expenses incurred for protection of capital assets.

Question 35.
State any four examples of capital losses.
Answer:
Some of the examples of capital losses are:

  • Loss sustained by a person by being a surety for another person.
  • Loss on sale of capital assets ( Fixed assets)
  • Loss on sale of investment
  • Loss of a fixed assets by fire etc.

Question 36.
State any four examples of revenue losses.
Answer:
Some of the examples of revenue losses are:

  • Loss suffered by a business on account of embezzlement by employees.
  • Loss of stock in trade by fire, theft, etc
  • Loss on sale of goods of the business.
  • Lose of cash by theft committed by an employee or an outsider during business hours.

Question 37.
What are the right of the assessee in the case of change of income tax authority?
Answer:
Sec. 129, in the case of change in income tax authority, the assessee may demand that before the proceeding be continued.

  • The previous proceeding or any part thereof, be reopened again.
  • He may be reheard before passing any order of the new authority.

Question 38.
Who is an inspector of income tax?
Answer:
Commissioner of IT, ITO, Tax Recovery Officer to be a inspector of Income tax.

Question 39.
Expand “CBDT”, “CIT” and “PAN”.
Answer:

  • CBDT: Central Board of Direct Taxes, CIT: Commissioner of Income Taxes
  • PAN : Permanent Account Number

Question 40.
State any four power of CBDT.
Answer:
The four powers of CBDT are:

  • To make rules for carrying out the objectives of IT act.
  • To issue orders and instructions to subordinate authorities for proper administration of IT act.
  • To authorize any IT authority to accept application of claims for any exemption, deduction, refund or any other relief after the expiry of the prescribed period.
  • To declare any institution, association or body to be a company.

Question 41.
What are the duties of assessing officer?
Answer:
If the assessee challenges the jurisdiction of the assessing officer, and the assessing officer is not satisfied with the correctness of the assessee’s claim, then he shall refer the matter to the Director General or Chief Commissioner or Commissioner before the completion of the assessment.

Question 42.
Mr. Kamal joined as an employee of ABC Company on 1.10.2019, determine the period of his previous year.
Answer:
Previous Year = 1.4.2019 to 31.4.2020