Question 1 (c)
Previous year and assessment year; the previous year of a new business (as set, 1961 Act, AY 2018-19)
3 marks
- Time to write
- About 6 minutes
From an older CBCS paper
Question
Question 1 (c) · 3 marksWhat is the relation between “Previous Year” and “Assessment Year”? What will be the PY that is relevant to AY 2018-19 if a new business is set up on: (3)
- 27.02.2017 and (ii) 31.03.2018
Paper note: The as-set version: set and answered under the Income-tax Act, 1961 for assessment year 2018-19 (previous year 2017-18), with the dates as printed. The two dates (27.02.2017 and 31.03.2018) are given after the marks, as printed; the question asks for the previous year relevant to AY 2018-19 for a business newly set up on each of them.
Reworded from the university paper; the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.
Before you write
Read off the question and its marks
Read from the question
- What isThe meaning first, then the main points.
Write it in this order
- 1 Relation between previous year and assessment year 1 mark 2 min
- 2 Rule for a newly set up business ½ mark 1 min
- 3 The two dates 1½ marks 3 min
Short on time? Step 3 carries 1½ of the 3 marks: guard its minutes.
Try it first. About 6 minutes for 3 marks. Write it out, then open the solution.
Solution
Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.
Relation between the two years
The assessment year is the twelve months beginning on 1 April in which the income of the year before is assessed and taxed (section 2(9)). The previous year is the financial year immediately before the assessment year (section 3). Tax for an assessment year is charged on the total income of its previous year (section 4(1)). The two years therefore run one after the other: the income is earned in the previous year and assessed in the next. For assessment year 2018-19 (1 April 2018 to 31 March 2019), the previous year is 2017-18, that is, 1 April 2017 to 31 March 2018.
Previous year of a newly set up business
A previous year can be shorter than twelve months but never longer. Where a business or profession is newly set up during a financial year, its first previous year starts on the date it is set up and ends on 31 March of that same financial year (proviso to section 3). From the next financial year it follows the general rule.
(i) Business set up on 27.02.2017
This date falls in financial year 2016-17. The first previous year, 27 February 2017 to 31 March 2017, belongs to assessment year 2017-18. By assessment year 2018-19 the business is no longer new in the financial year concerned, so the general rule applies: the previous year is the full financial year 1 April 2017 to 31 March 2018.
(ii) Business set up on 31.03.2018
This date falls in financial year 2017-18 itself, so the proviso applies. The previous year begins on the date of setting up and ends with that financial year: 31 March 2018 to 31 March 2018, a previous year of a single day. Its income is assessed in assessment year 2018-19.
Where the 3 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Relation between previous year and assessment year | 1 |
| 2 | Rule for a newly set up business | 0.5 |
| 3 | The two dates | 1.5 |
| Total | 3 |
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