Tax Liability of an Individual Assesses25/07/2020
An income tax assessee is a person who pays tax or any sum of money under the provisions of the Income Tax Act, 1961. The term ‘assessee’ covers everyone who has been assessed for his income, the income of another person for which he is assessable, or the profit and loss he has sustained.
An individual who is liable to pay taxes for the income earned during a financial year is known as a normal assessee. Every individual who has earned any income earned or losses incurred during the previous financial years are liable to pay taxes to the government in the current financial year.
All individuals who pay interest/penalty or who are supposed to get a refund from the government are categorised as normal assessees. Say, Mr A is a salaried individual who has been paying taxes on time over the past 5 years. Then, Mr A can be considered as a normal assessee under the Income Tax Act, 1961.
There may be a case in which a person is liable to pay taxes for the income or losses incurred by a third party. Such a person is known as representative assessee.
Representatives come into the picture when the person liable for taxes is a non-resident, minor, or lunatic. Such people will not be able to file taxes by themselves. The people representing them can either be an agent or guardian.
Consider the case of Mr X. He has been residing abroad for the past 7 years. However, he receives rent for two house properties he owns in India. He takes the help of a relative, Mr Y, to file taxes in India. In this case, Mr Y acts as a representative assessee. If assessing officer plans to investigate the tax filing, Mr Y will be asked to provide the necessary documents as he is the guardian of the property and represents Mr X.
An individual might be assigned the responsibility of paying taxes by the legal authorities and such individuals are called deemed assessees. Deemed assessees can be:
- The eldest son or a legal heir of a deceased person who has expired without writing a will.
- The executor or a legal heir of the property of a deceased person who has passed on his property to the executor in a writing.
- The guardian of a lunatic, an idiot, or a minor.
- The agent of a non-resident Indian receiving income from India.
For example, Mr P owns a commercial building from which he earns rent income. He has prepared and signed a will stating the property should be handed over to his niece after his death. Upon his death, his niece will be considered as the executor of the property, i.e. deemed assessee. She will be responsible for paying tax on the rental income thereon.
Assessee-in-default is a person who has failed to fulfil his statutory obligations as per the income tax act such as not paid taxes to the government or not file his income tax return.
For example, an employer is supposed to deduct taxes from the salary of his employees before disbursing the salary. He is, then, required to pay the deducted taxes to the government by the specified due date. If the employer fails to deposit the tax deducted, he will be considered as an assessee-in-default.
Every assessee, who earns income in excess of the basic exemption limit in a Financial Year (FY), must file a statement containing details of his income, deductions, and other related information. This is called the Income Tax Return. Once you as a taxpayer file the income returns, the Income Tax Department will process it. There are occasions where, based on set parameters by the Central Board of Direct Taxes (CBDT), the return of an assessee gets picked for an assessment.
The various forms of assessment are as follows:
1. Self Assessment
The assessee himself determines the income tax payable. The tax department has made available various forms for filing income tax return. The assessee consolidates his income from various sources and adjusts the same against losses or deductions or various exemptions if any, available to him during the year. The total income of the assessee is then arrived at. The assessee reduces the TDS and Advance Tax from that amount to determine the tax payable on such income. Tax, if still payable by him, is called self assessment tax and must be paid by him before he files his return of income. This process is known as Self Assessment.
2. Summary Assessment
It is a type of assessment without any human intervention. In this type of assessment, the information submitted by the assessee in his return of income is cross-checked against the information that the income tax department has access to. In the process, the reasonableness and correctness of the return are verified by the department. The return gets processed online, and adjustment for arithmetical errors, incorrect claims, disallowances etc are automatically done. Example, credit for TDS claimed by the taxpayer is found to be higher than what is available against his PAN as per department records. Making an adjustment in this regard can increase the tax liability of the taxpayer.
After making the aforementioned adjustments, if the assessee is required to pay tax, he will be sent an intimation under Section 143(1). The assessee must respond to this intimation accordingly.
3. Regular Assessment
The income tax department authorizes the Assessing Officer or Income Tax authority, not below the rank of an income tax officer, to conduct this assessment. The purpose is to ensure that the assessee has neither understated his income or overstated any expense or loss or underpaid any tax.
The CBDT has set certain parameters based on which a taxpayer’s case gets picked for a scrutiny assessment.
- If an assessee is subject to a scrutiny assessment, the Department will send a notice well in advance. However, such notice cannot be served after the expiry of 6 months from the end of the Financial year, in which return is filed.
- The assessee will be asked to produce the books of accounts, and other evidence to validate the income he has stated in his return. After verifying all the details available, the assessing officer passes an order either confirming the return of income filed or makes additions. This raises an income tax demand, which the assessee must respond to accordingly.
4. Best Judgement Assessment
This assessment gets invoked in the following scenarios:
- If the assessee fails to respond to a notice issued by the department instructing him to produce certain information or books of accounts
- If he/she fails to comply with a Special Audit ordered by the Income tax authorities
- The assessee fails to file the return within due date or such extended time limit as allowed by the CBDT
- The assessee fails to comply with the terms as contained in the notice issued under Summary Assessment
- After providing the assessee with an opportunity of being heard, the assessing officer passes an order based on all the relevant materials and evidence available to him. This is known as Best Judgement Assessment.
5. Income Escaping Assessment
When the assessing officer has sufficient reasons to believe that any taxable income has escaped assessment, he has the authority to assess or reassess the assessee’s income. The time limit for issuing a notice to reopen an assessment is 4 years from the end of the relevant Assessment Year. Some scenarios where reassessment gets triggered are given below.
- The assessee has taxable income but has not yet filed his return.
- The assessee, after filing the income tax return, is found to have either understated his income or claimed excess allowances or deductions.
- The assessee has failed to furnish reports on international transactions, where he is required to do so.
Assessment, in the case of some taxpayers, could close quickly while for some, it could prove to be quite gruelling. In case you are not comfortable dealing with income tax officers, it is suggested that you take the help of a Chartered Accountant to help you with your case.