Income Tax is collected based on the Income earned by the assessees and it is mandatory to know the definition of the Income as per provisions of Income Tax Act, 1961. The definition for the Income starts with “Income includes” In the Act. In the Act the definition does not confines the scope of the Income. The definition has broad space for more inclusions within the ambit of the term. There are certain principles are being framed by the Act to define revenue as an Income, which enumerated below.
- It is a periodic monetary return, which accrues or is expected to accrue regularly or irregularly from a definite source.
- Normally Revenue Receipts are considered as Income but in some situations Capital Receipts are also accepted as Income as per the Act.
- Net Receipts are regarded as Income; expenses in connection with Gross Receipts should be deducted to form it as Net Receipts. Deductions for computation of Total Income in relation with each Head are prescribed in the Act.
- Whatever the Accounting method employed by the assessee; either it is Cash or Mercantile System in that method only the income should be figured out only in the case of computation of Gross Income of Profits and gains of business or profession and Income from other sources Heads.
- Net Revenue generated for the previous year has to be taxable in the assessment year. Previous Year is a financial year which ends on 31st day of March month, in which year the assessee accrues the income. Assessment Year is the year which is following the Previous Year. For instance. Income earned during previous year 2013-14 will be assessed during 2014-15. Therefore 2013-14 is the Previous Year and 2014-15 will be the Assessment Year.