Exceptions to the General Rule: Previous year Assessment

 General Rule:

Income of a previous year is assessed in the assessment year following the previous year.

  • Previous Year (PY): The financial year in which the income is earned (e.g., 1st April 2024 to 31st March 2025).
  • Assessment Year (AY): The year immediately following the previous year when income is assessed and taxed (e.g., AY 2025-26).

 Example: Income earned during FY 2024-25 (PY) will be assessed in AY 2025-26.

Exceptions to the General Rule:

There are certain situations where the income of a previous year is assessed in the same previous year itself, and not deferred to the following assessment year.

These exceptions are provided to protect revenue interests, especially when there's a risk of the income escaping assessment.

 1. Shipping Business of Non-Resident [Section 172]

  • Applies to non-resident owners/charterers operating ships in India.
  • Since these individuals may not be traceable in the next year, tax is collected at the time of receipt or before the ship leaves India.

 2. Persons Leaving India [Section 174(1)]

  • If a person is about to leave India and may not return, the income is assessed in the same year.
  • This ensures that they do not escape assessment by leaving before the assessment year.

 3. AOP/BOI or Artificial Juridical Person Formed for a Particular Event or Purpose [Section 174A]

  • If an Association of Persons (AOP), Body of Individuals (BOI), or Artificial Juridical Person is formed temporarily for a specific event or purpose (like a tournament or project), assessment is done in the same year, as it may not exist in the following year.

 4. Persons Likely to Transfer Property to Avoid Tax [Section 175]

  • If an Assessing Officer believes that a person is likely to transfer assets to evade taxes, the income is assessed immediately.
  • This is a preventive measure to ensure recovery of tax dues.

 5. Discontinued Business [Section 176]

  • When a business or profession is discontinued, tax is assessed for the period until discontinuation, in the same previous year.
  • This helps in ensuring tax is collected before the entity dissolves or disperses its assets.

 Summary Table:

Scenario

Section

Why Income is Assessed in the Same Year

Shipping business of non-resident

172

Non-residents may leave before AY; tax collected immediately

Person leaving India

174(1)

Risk of non-return; urgent assessment needed

AOP/BOI/Artificial Juridical Person (temporary)

174A

Entity may dissolve after the event/purpose

Transfer of property to avoid tax

175

Prevents tax evasion via asset transfer

Discontinued business

176

Ensures assessment before closure

 

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