Why should Taxpayers pay Taxes in the Same year?

This document covers

1. What is Previous Year and Assessment year?
2. Cases where the income of previous year is taxable in the previous year itself
   1. Shipping Business of Non-Resident
   2. Persons leaving India
   3. AOP/BOI/ Artificial Judicial Person (AJP) formed
   4. Persons likely to transfer property to avoid taxes
   5. Discontinued Business
3. Tax Clearance Certificate

1. What is Previous Year and Assessment year?

Previous Year (PY): Previous year means the financial year immediately preceding the assessment year. The year in which income is earned is called previous year.

Assessment Year (AY): It means a period of 12 months which commences on 01st April every year. The year in which income is taxable is called assessment year.

2. Cases where the income of previous year is taxable in the previous year itself (Exceptions to general rule)

2.1. Shipping Business of Non-Resident Indian (NRI)

• The shipping business of Non Resident is required to pay taxes in previous year itself if the ship belongs to a Non Resident or chartered by Non Resident and it is carrying passengers, livestock, mail or goods shipped at a port in India.
• The deemed income of the ship will be 7.5% of the freight paid or payable to the owner or charterer of the ship whether in India or outside India on account of such carriage.
• The ship is required to pay or make satisfactory arrangements for payment of Tax before the ship is leaving the port.

2.2. Persons leaving India

• If Income Tax officer is of the opinion that any individual might leave India during the current Assessment year or shortly after its expiry and the individual don’t have present intention of returning to India, the income of the individual will be assessed in the previous year itself.
• Income from the end of previous year upto the date of probable date of his departure from India is chargeable to tax in the same previous year.

2.3. AOP/BOI/ Artificial Judicial Person (AJP) formed for a particular event or purpose

• If AOP/BOI/AJP is formed for a particular event or purpose and the Assessing officer is of the opinion that AOP/BOI/AJP is likely to be dissolved in the same year or next year, the AOP/BOI/AJP is required to pay taxes on the income earned upto date of dissolution in the same previous year
• In normal cases, AOP is required to pay taxes in AY 2025-26

2.4. Persons likely to transfer property to avoid taxes

• In the event that the Assessing Officer suspects that an individual intends to sell, dispose of, or transfer property in order to evade tax payments, the AO will evaluate the individual's income from the previous year. Additionally, the individual is obligated to pay taxes at the same time.

2.5. Discontinued Business

• The income earned between the end of the previous year and the date of discontinuation will be taxed in the same assessment year at the discretion of the Assessing Officer if such business or profession is discontinued in the same assessment year.

3. Tax Clearance Certificate

Certain persons are required to get Tax Clearance Certificate before leaving India. The following persons are required to get Tax Clearance Certificate

• If the person is involved in serious financial irregularities and his presence is necessary for investigation and there is a possibility that tax demand will be raised against them
• If the taxpayer has tax demand of more than tax demand of more than Rs 10 lakhs and it is not stayed by any authority.