About Income Tax
Annual charge levied on both earned income (wages, salaries, commission) and unearned income (dividends, interest, rents). In addition to financing a government’s operations, progressive income taxation is designed to distribute wealth more evenly in a population, and to serve as automatic fiscal stabilizer to cushion the effects of economic cycles. Its two basic types are:-

Personal Income Tax

Personal income tax, levied on incomes of individuals, households, partnerships, and sole-proprietorships;

Tax paid on one’s personal income as distinct from the tax paid on the firm’s earnings. In an incorporated firm, the owners (shareholders) pay taxes on both their income (salary or dividend from the firm) firm’s income (profits). In partnerships and sole-ownerships, the tax is paid only once on the firm’s profits.

Corporation Income Tax

Corporation income tax, levied on profits (net earnings) of incorporated firms.

Firm that meets certain legal requirements to be recognized as having a legal existence, as an entity separate and distinct from its owners. Corporations are owned by their stockholders (shareholders) who share in profits and losses generated through the firm’s operations, and have three distinct characteristics

(1) Legal existence: a firm can (like a person) buy, sell, own, enter into a contract, and sue other persons and firms, and be sued by them. It can do well and be rewarded, and can commit offence and be punished.

(2) Limited liability: a firm and its owners are limited in their liability to the creditors and other obligors only up to the resources of the firm, unless the owners give personal-guaranties.

(3) Continuity of existence: a firm can live beyond the life spans and capacity of its owners, because its ownership can be transferred through a sale or gift of shares.

  • Municipal authority of a town or city.
  • A very large, usually diversified, firm.

For more information, see The Difference between an S Corporation and an LLC.

Types of Income Tax Return Forms

To file tax returns Income Tax Department had issued a series of forms applicable to different type of assesses:

ITR 1: This form is applicable for an individual who has no income other than Salary/ Pension and Interest.

ITR 2: This form is applicable for an individual who has income under different heads but not business /profession income.

ITR 3: This form is applicable for an individual who is partner in a partnershipfirm .

ITR 4: This form is applicable for an individual who has income from business/profession.

ITR 5: This form is applicable for a Firms, AO,BOI, Local Authority.

ITR 6: This form is applicable for a Company.

ITR 7: This form is applicable for a Trust.

ITR 8: This form is used for filing only FBT Return.