Question 1 (a)
Income of one year taxed after it ends, and the exceptions
6 marks
- Time to write
- About 12 minutes
- Notes
- Crux notes
Question
Question 1 (a) · 6 marks"A previous year's income is taxable in the assessment year immediately succeeding it". Do you agree with this statement. Give exceptions. (6)
Paper note: Set under the Income-tax Act, 1961 for assessment year 2025-26 (previous year 2024-25); answered under the Income-tax Act, 2025 for tax year 2026-27, so the year term moves forward by 2 years and every date in the question moves forward by the same 2 years, so that intervals, holding periods and ages are as printed. Every figure and name is as printed. The question rests on the previous year and assessment year of the Income-tax Act, 1961; the answer explains them and the tax year of the Income-tax Act, 2025.
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
- agreeA statement to judge: take a stand on it in your first line, and come back to it at the end.
Write it in this order
- Read; underline the asks; jot your points 1 min
- 1 The general rule: previous year, assessment year and tax year 2 marks 3 min
- 2 Whether the statement holds 1 mark 2 min
- 3 The five exceptions 3 marks 5 min
- Check: every ask answered, key terms underlined 1 min
Short on time? Trim steps 1 and 3 evenly rather than skip one: each is capped at its own marks.
Try it first. About 12 minutes for 6 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.
Under the Income-tax Act, 1961, the year in which income is earned was the previous year, and the following year, in which it was assessed, was the assessment year. The Income-tax Act, 2025 drops both terms and uses one: the tax year, the financial year from 1 April to 31 March (section 3(1)); a business or source of income that starts during a year has a first tax year running from its start to 31 March (section 3(2)). Income-tax is charged at the rates fixed by the Finance Act for the tax year on the total income of that tax year (section 4(1)-(2)). The tax is collected during the year by deduction or collection at source and advance tax (section 4(5)), and the income is returned and assessed after the tax year ends. So income of tax year 2026-27 is returned and assessed only after 31 March 2027, not during 2026-27.
1Rent earned this year, Leela ji's tax notice comes next year—the usual rhythm.
Previous yearIncome is earned in one year and taxed in the next
2Not for the foreign ship's freight: it pays before the gangway lifts, it may never return.
Shipping business of non-residentsThe ship may never return, so the tax is settled before it leaves.
3And for the tenant migrating abroad, the year's account settles before the flight.
Persons leaving IndiaThe income up to the expected date of departure can be assessed in that same year.
Yes, as the general rule. The income of a year is assessed after that year ends, not during it: under the 1961 Act the income of the previous year was taxed in the immediately following assessment year, and under the 2025 Act the income of a tax year is assessed after that tax year closes. Section 4(4), however, provides that where the Act charges income of some other period, the tax is charged accordingly. In five cases the Act lets the Assessing Officer tax income in the same tax year in which it is earned, without waiting for the year to end, because the tax might otherwise never be collected (under sections 317 and 318 the period can also run to a departure or dissolution just after the year ends).
Exceptions: income taxed in the year it is earned
| # | Case | 2025 Act (1961 Act) | What is taxed, and why |
|---|---|---|---|
| 1 | Occasional shipping business of a non-resident | Section 316 (section 172) | For a ship belonging to or chartered by a non-resident (section 316(1)), 7.5% of the freight on passengers, livestock, mail or goods shipped at an Indian port, demurrage, handling and similar charges included, is deemed income of the owner or charterer (section 316(2)); before the ship leaves the port its master files a return of the whole amount paid or payable for the carriage shipped there since the ship last arrived at that port (section 316(3)), and since the ship may never return it gets no port clearance until the tax is paid or satisfactory arrangements are made for paying it (section 316(8)); where the Assessing Officer is satisfied that the master cannot file before departure and has made satisfactory arrangements for the return and the tax, a person he authorises may file within 30 days after the ship leaves (section 316(4)); the tax is at the rate for a company that has not made the arrangements of section 393(1), payable by the master (section 316(5)); to work out the tax the Assessing Officer may call for any accounts or documents he needs (section 316(7)); and no order may be made more than nine months after the end of the tax year in which the return is furnished (section 316(6)); the owner or charterer may instead claim, by the close of the year after the tax year in which the ship left the Indian port (the departure year, not the year in which the return is furnished), a regular assessment of his total income of that departure year under the other provisions of the Act, any payment made under the section during the tax year counting, if he so claims, as advance tax, with any difference paid or refunded (section 316(9)-(10)). |
| 2 | Persons leaving India | Section 317 (section 174) | An individual likely to leave India in the year, or soon after, with no present intention of returning: income from the start of the year to the probable date of departure is taxed in that year. |
| 3 | An association of persons, body of individuals or artificial juridical person set up for one event or purpose | Section 318 (section 174A) | Where it is likely to be dissolved in the same year or just after, its income up to dissolution is taxed in that year. |
| 4 | Persons likely to transfer property to avoid tax | Section 319 (section 175) | Where a person is likely to charge, sell, transfer or otherwise part with his assets to avoid paying tax, income up to the date the proceedings start is taxed in that year. |
| 5 | Discontinued business or profession | Section 320 (section 176) | Income from the start of the year to the date of discontinuance may, at the Assessing Officer's discretion, be taxed in that year. |
In cases 2 to 5, each completed year or part of a year in the period is taxed at the rates in force for that year, with a separate assessment for each (section 317(2), which sections 318(2) and 319(2) apply to cases 3 and 4; section 320(2) says the same for case 5). For cases 2 to 4 (sections 317(3)-(6), applied by sections 318(2) and 319(2)):
- where the income cannot readily be determined, the Assessing Officer may estimate it (section 317(3));
- his notice gives at least seven days to file a return in the form, and verified in the manner, of a return under section 268(1), showing the total income of each completed tax year in the period and the estimated total income of any part of a tax year (section 317(4));
- he may also, by notice under section 268(1) or 280, call for a return for tax chargeable under any other provision, giving at least seven days (section 317(5)); and
- the tax charged is in addition to any tax chargeable under the other provisions of the Act (section 317(6)).
For case 5, a person who discontinues a business or profession must tell the Assessing Officer within fifteen days (section 320(3)). A sum received after a business is discontinued, or after a profession ends on the cessation, retirement or death of the person carrying it on, is taxed as the recipient's income of the year of receipt, if it would have been part of that person's total income had it been received before the discontinuance (section 320(4)-(5)). The same notice power for other tax, with at least seven days, and the same rule that the tax is additional apply (section 320(7)-(8)). Cases 1 to 4 are compulsory once the Assessing Officer is satisfied that the facts exist; case 5 is discretionary.
The statement is true as the general rule: income is earned in one year and assessed after that year ends (the previous year and assessment year of the 1961 Act; one tax year under the 2025 Act). It is not absolute: in the five cases above, income is taxed in the year it is earned (or up to a departure or dissolution just after it), to protect the revenue.
Where the 6 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | The general rule: previous year, assessment year and tax year | 2 |
| 2 | Whether the statement holds | 1 |
| 3 | The five exceptions | 3 |
| Total | 6 |
Report a problemopens an email to admin@getkunji.com with the question ID7501-Q1aalready filled in.