Important Definitions 

Taxation in India involves a complex set of rules and definitions that every taxpayer should be familiar with. From understanding the difference between the Assessment Year and the Previous Year to recognizing when certain incomes are taxed in the same year they are earned, these concepts form the foundation of the tax system. This blog aims to clarify some of the most important definitions and scenarios in taxation, helping you better navigate your tax obligations and ensure compliance with the law.

• Assessment Year (A.Y.) [Sec. 2(9)] - Assessment year means the period of 12 months commencing on the 1st day of April every year.
• The year in which income is earned is the previous year and such income is taxable in the immediately following year which is the assessment year
• Previous Year (P.Y.) [Sec.3] - The term has been defined under section 3. It means the financial year immediately preceding the assessment year
• It is mandatory for all assessee to follow financial year (from 1st April to 31st March) as previous year for Income-Tax purpose.

Certain cases when income of a previous year will be assessed in the previous year itself

• Shipping business of non-resident [Section 172] -
  • Where a ship, belonging to or chartered by a non-resident,
  • carries passengers, livestock, mail or goods shipped at a port in India,
  • the ship is allowed to leave the port only when the tax has been paid or satisfactory arrangement has been made for payment thereof.
  • 7.5% of the freight is deemed to be his income which is charged to tax in the same year in which it is earned
• Persons leaving India [Section 174]
  • Where it appears to the Assessing Officer that any individual may leave India during the current assessment year or shortly after its expiry and he has no present intention of returning to India
• AOP/BOI/Artificial Juridical Person formed for a particular event or purpose [Section 174A]
• • Assessing Officer apprehends that the AOP/BOI is likely to be dissolved in the same year or in the next year

Certain cases when income of a previous year will be assessed in the previous year itself

• Persons likely to transfer property to avoid tax [Section 175] -
• • if it appears to the Assessing Officer that a person is likely to charge, sell, transfer, dispose of or otherwise part with any of his assets to avoid payment of any liability under this Act
• Discontinued business [Section 176] -
• • Where any business or profession is discontinued in any assessment year, the income of the period from the expiry of the previous year up to the date of such discontinuance may, at the discretion of the Assessing Officer, be charged to tax in that assessment year

UNDISCLOSED SOURCES OF INCOME

• Cash Credits [Section 68] -
  • Where any sum is found credited
  • no explanation about the nature and source or the explanation offered is not satisfactory
  • in the opinion of the Assessing Officer,
  • the sum so credited may be charged as income
• Unexplained Investments [Section 69]
• Unexplained money etc. [Section 69A] - money, bullion, jewellery or other valuable article
  • not recorded in the books; or
  • not fully disclosed in the books [Section 69B]
• Unexplained expenditure [Section 69C]
• Amount borrowed or repaid on hundi [Section 69D]

Income [Section 2(24)]

(1) Definition of Income
The definition of income as per the Income-tax Act, 1961 begins with the words “Income includes”. Therefore, it is an inclusive definition and not an exhaustive one. 
Such a definition does not confine the scope of income but leaves room for more inclusions within the ambit of the term. Section 2(24) of the Act gives a statutory definition of income. The following items of receipts are specifically included in the said definition:—
(1) Profits and gains;
(2) Dividends;
(3) Voluntary contributions received by a trust/institution created wholly or partly for charitable or religious purposes or by certain research association 
or universities and other educational institutions or hospitals and other medical institutions or an electoral trust;
(4) The value of any perquisite or profit in lieu of salary taxable under section 17(2)/(3);
(5) Any special allowance or benefit, other than the perquisite included above, specifically granted to the assessee to meet expenses wholly, necessarily and exclusively for the performance of the duties of an office or employment of profit;
(6) Any allowance granted to the assessee to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at a place where he ordinarily resides or to compensate him for the increased cost of living;
(7) The value of any benefit or perquisite whether convertible into money or not, obtained from a company either by a director or by a person who has a substantial interest in the company or by a relative of the director or such person and any sum paid by any such company in respect of any obligation which, but for such payment, would have been payable by the director or other person aforesaid;
(8) The value of any benefit or perquisite, whether convertible into money or not, which is obtained by any representative assessee3 or by any beneficiary and any amount paid by the representative assessee for the benefit of the beneficiary which the beneficiary would have ordinarily been required to pay.
(9) Profits and gains of business or profession chargeable to tax under section 28(ii)/(iii)/(iiia)/(iiib)/(iiic)/(v)/(va);
(10) Deemed profits chargeable to tax under section 41 or section 59;
(11) The value of any benefit or perquisite taxable under section 28(iv);
(12) Any capital gains chargeable under section 45;
(13) Any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling, or betting of any form or nature whatsoever. For this purpose,
(i) “Lottery” includes winnings from prizes awarded to any person by draw of lots or by chance or in any other manner whatsoever, under any scheme or arrangement by whatever name called;
(ii) “Card game and other game of any sort” includes any game show, an entertainment programme on television or electronic mode, in which people compete to win prizes or any other similar game;
(14) Any sum received by the assessee from his employees as contributions to any provident fund (PF) or superannuation fund or Employees State Insurance Fund (ESI) or any other fund for the welfare of such employees;
(15) Any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy will constitute income;“Keyman insurance policy” means a life insurance policy taken by a person on the life of another person where the latter is or was an employee of former or is or was connected in any manner whatsoever with the former’s business. It also includes such policy which has been assigned to a person with or without any consideration, at any time during the term of the policy.
(16) Fair market value of inventory as on the date of its conversion into or 
treatment as a capital asset under section 28(va);
(17) Any consideration received for issue of shares as exceeds the fair market value of the shares [Section 56(2)(viib)];
(18) Any sum of money received as advance, if such sum is forfeited consequent to failure of negotiation for transfer of a capital asset [Section 56(2)(ix)];
(19) Any sum of money or value of property received without consideration or for inadequate consideration by any person [Section 56(2)(x)];
(20) Any compensation or other payment, due to or received by any person, in connection with termination of his employment or the modification of the term and conditions relating thereto [Section 56(2)(xi)];
(21) Sum received, including the amount allocated by way of bonus, under a LIP other than under a ULIP and keyman insurance policy, which is not exempt u/s 
10(10D), to the extent the same exceeds the aggregate of the premium paid during the term of the policy, and not claimed as deduction under any other 
provision of the Act [Section 56(2)(xiii)
(22) Assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement, by whatever name 
called, by the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee is included in the definition of income.
However, subsidy or grant or reimbursement which has been taken into account for determination of the actual cost of the depreciable asset in accordance with Explanation 10 to section 43(1) shall not be included in the definition of income.

Conclusion

A solid understanding of taxation definitions and special cases can significantly impact your financial planning and tax compliance. Whether it's knowing when your income will be taxed or how undisclosed sources of income are treated, being informed empowers you to manage your taxes more effectively. By staying up-to-date with these critical concepts, you can avoid potential pitfalls and ensure that your financial activities align with the requirements of the tax authorities.