q.

The Previous Year and Assessment Year in Income Tax that is for example, if you are filing your income
tax return for FY 2017-18, then the previous year would be FY 2016-17. The tax that a person pays in the
current financial year is on the income earned in the last year. This year is known as the previous year.

Section 3 of the Income tax act of 1961 says that the previous is the immediately preceding year. It
starts on April 1 and ends on 31st March. The tax for the previous year is paid in the assessment year.

Assessment Year
The assessment year is the financial year in which an income tax return is filed. The assessment year can
be the same as the Financial Year or different from Financial Year. For example, if a business person
starts his/her business on 1st April 2016 and files his/her income tax return for FY 2016-17 (the
assessment year 2017-18) then FY 2016-17 will be the assessment year for Income Tax Return filing
purposes.

Assessment year is the year in which an individual assesses their Income for income tax filing purposes.
Assessment of income can be done in several ways; one of the most common assessments is called self-
assessment.

In this, a person analyzes the entire income and the information they provide and make sure that it is
up-to-date and accurate. If you need help with filing income tax returns and assessment of the
information you can reach out to legal experts at Vakilsearch. You can also take help in Income Tax
Return assessments and they will guide you through the entire procedure step by step.

Importance of Assessment Year in ITR:-

The income tax assessment year is the financial year in which an income tax return has to be filed. The
assessment year is decided by the Income Tax Department based on your previous years’ income and
other relevant factors. The assessment year for an individual starts on the 1st of April of a particular
financial year and ends on the 31st of March of the next financial year.

Assessment year allows the taxpayers as well as the income tax department to assess the previous
year’s income and ensure its accuracy. This is helpful while filing the income tax return. The assessment
year starts on April 1 and ends on 31st March.

To put it in simpler words, the year in which the income is earned is the previous year whereas the year
in which that Income is assessed for income tax filing purposes is the assessment year.

Conclusion:-
Income tax returns are filed every year by people who earn a certain amount of income. This Tax
amount is used by the government to fund public schemes and for the development of the nation.

For filing income tax returns it is important that you are aware of the terms and the step-by-step
process. Assessment year and previous year are two important terms for filing income tax returns.
Assessment year is the year in which the annual income of an individual is assessed for income tax filing
in process. The previous year is the year in which the income is earned. The previous year precedes the
assessment year.

Q.2

Meaning and importance of

residential status
The taxability of an individual in India depends upon his residential status in
India for any particular financial year. The term residential status has been
coined under the income tax laws of India and must not be confused with an
individual’s citizenship in India. An individual may be a citizen of India but may
end up being a non-resident for a particular year. Similarly, a foreign citizen
may end up being a resident of India for income tax purposes for a particular
year. Also to note that the residential status of different types of persons viz
an individual, a firm, a company etc is determined differently. In this article, we
have discussed about how the residential status of an individual taxpayer can
be determined for any particular financial year.

How to determine residential

status?
For the purpose of income tax in India, the income tax laws in India classifies
taxable persons as:
 A resident

 A resident not ordinarily resident (RNOR)

 A non-resident (NR)

The taxability differs for each of the above categories of taxpayers. Before we
get into taxability, let us first understand how a taxpayer becomes a resident,
an RNOR or an NR.

Resident
A taxpayer would qualify as a resident of India if he satisfies one of the
following 2 conditions :

1. Stay in India for a year is 182 days or more or

2. Stay in India for the immediately 4 preceding years is 365 days or

more and 60 days or more in the relevant financial year

Exceptions to Residential Status

In the event an individual who is a citizen of India or person of Indian origin
leaves India for employment during an FY, he will qualify as a resident of India
only if he stays in India for 182 days or more. Such individuals are allowed a
longer time greater than 60 days and less than 182 days to stay in
India. However, from the financial year 2020-21, the period is reduced to
120 days or more for such an individual whose total income (other than
foreign sources) exceeds Rs 15 lakh.

In another significant amendment from FY 2020-21, an individual who is a

citizen of India who is not liable to tax in any other country will be deemed to
be a resident in India. The condition for deemed residential status applies only
if the total income (other than foreign sources) exceeds Rs 15 lakh and nil tax
liability in other countries or territories by reason of his domicile or residence
or any other criteria of similar nature.

Q.3

If Actual Rent is lower than Reasonable Rent, only because the house was
vacant and not for any other reason, take actual rent collected as Gross
Annual Value.

If Actual Rent is lower than Reasonable Rent because of other factors (say
the tenant and the landlord are related), then take reasonable rent as GAV.

Income received as rent from subletting of house property

will be taxed under “Income from House Property”?

No. This is because rental income received by the owner of property alone is
taxed as “Income from House Property”. Rental income in the hands of
anyone other than the owner shall be taxed under “Other sources”. Therefore,
income from subletting will be chargeable under “Other Sources”.
Can a deduction of interest paid against loan taken from
friends and relatives be claimed from house property
income?

Yes. A deduction under Section 24 for interest paid on loan availed from
friends or relatives is also allowed from the Net Annual Value. The law
nowhere mandates that the loan should have been taken only from a bank to
claim this deduction.

But here, one must note that the principal repayment in respect of such a loan
will not qualify for a deduction under Section 80C.

I have taken a home loan from a bank for construction of a

house in June 2015. The construction of the house is
complete in June 2018. I have started paying the EMI for
the home loan taken from July 2015. Will I not get any
benefit of the home loan repayment made between July
2015 and June 2018 as the construction is complete only
in June 2018?

The income tax law allows you to claim pre-construction interest as a

deduction from the Net Annual Value, which is nothing but the interest
payment on home loan made between the date of borrowing and date of
completion of construction. This interest can be claimed in 5 equal instalments
beginning the year of completion of construction besides the regular interest
claim.
How does the claim of deduction under Section 24 and
Section 80C work if a home loan has been availed for 2
houses?

A taxpayer can claim deduction under Section 24 of interest paid on home

loan for each of the houses separately. However, the overall loss from house
property that can be claimed for a year is restricted to Rs 2 lakhs.

As regards 80C deduction, the principal portion of home loan repaid in respect
of both houses can be claimed, however within the overall cap of Rs 1.5 lakhs
for each financial year.

What is a self occupied property, let out property and

deemed let out property?

Self-occupied: Is one where you or your family resides and the question of
receiving rental income out of this does not arise

Let Out: Is one which you have given out on rent. Therefore, the rental
income would be considered as your income from house property.

Deemed Let out: When a taxpayer owns more than two house property, the
law mandates that only two (Prior to Budget 2019, it was only one property)
such properties can be treated as self-occupied while the third one
(irrespective of whether let out or not) will be deemed to be let out.
I have incurred a loss from house property. I have missed
the return filing deadline. Will I lose the benefit of carry
forward of losses incurred?

One is supposed to file his return within the due date which is 31 July for most
of the individual taxpayers. If this is not done, losses if any, would not be
allowed to be carried forward to future years for set off. However, losses from
house property is an exception to this rule and can be carried forward to future
years even if return is not filed on time.

I have paid municipal taxes on my flay pertaining to the

year 2017-18 in April 2018. Can I claim deduction of such
taxes for FY 2017-18 (AY 2018-19)?

Municipal taxes are always allowed as a deduction only on payment basis.

Though you have paid taxes pertaining to FY 2017-18, since the payment has
been made in April 2018 i.e. FY 2018-19, it will be allowed for FY 2018-19
only as a deduction from Gross Annual Value

I am the owner of a shop space which I have given out on

rent. How should I offer such income to tax?

If rent has to be charged to tax under “Income from House Property”, the
property that has been given on rent must be a building or a land appurtenant
thereto. Since the shop falls under the definition of a building, the rental
income from such shop must be offered to tax under “House Property only”.
I have transferred my flat in the name of my wife as a gift.
She receives monthly rental from this flat. Should she offer
this as her income?

Since the flat has been given to your wife as a gift i.e. for nil consideration,
you will be considered as the “deemed owner” of the house and the income
from renting the flat will be clubbed in your hands and you must offer the
same to tax as house property income.

If you want help with

q.2

q.Q2