Ascertaining the Tax Liability of an Individual Assessee
Ascertaining the Tax Liability of an Individual Assessee Introduction The determination of tax liability for an individual assessee is a systematic process governed by the Income Tax Act, 1961. It involves calculating the total income earned during a previous year and applying the relevant tax rates prescribed by the annual Finance Act. For the Assessment Year (AY) 2025-26, the process requires a careful choice between the default New Tax Regime and the optional Old Tax Regime. 1. Determination of Residential Status The first step is to establish the residential status of the individual (Resident, Resident but Not Ordinarily Resident, or Non-Resident). This is crucial because a "Resident" is taxed on their global income, whereas a "Non-Resident" is only taxed on income earned or received within India. 2. Classification of Income under Five Heads Income from all sources is categorized into five distinct heads. Each head has its own set of rules for computa...