ASSESSMENT UNDER THE INCOME TAX ACT OF 1961

AN IN-DEPTH EXAMINATION OF THE INCOME TAX ACT OF 1961, ITS PROVISIONS, STAGES, AND TYPES OF ASSESSMENT, AND THE ROLE OF ASSESSMENT IN ENSURING TAX COMPLIANCE AND REVENUE GENERATION

INTRODUCTION:

In India, the Income Tax Act of 1961 (hereinafter mentioned as the Act) provides general rules for computing income tax. Evaluation is the method used by the government to decide the amount of tax that the common individual or a company should pay depending on his/her income and expenditures. This article discusses assessment under the Act, its phases, types, and sections.

CONCEPT OF ASSESSMENT

Within the purview of Section 142(1)[1] of the Act, the assessment has been understood as the process of calculation of the tax that is payable by the assessee with reference to the income and deductions. This is a significant measure in the chain of income tax, to view that every contributor makes a fair contribution towards the national revenues.

STAGES OF ASSESSMENT

The assessment process involves several distinct stages:

Filing of Return of Income: The assessment process starts with the filing of a return of income by the assessee. This return has particulars of the income of the assessee, the deduction allowed and the amount of tax paid during the income year. The Act provides the avenue of filing returns in manners that depend on the kind of income and also category of the assessee.

Scrutiny of Return: The gross amount as filed by the assessee is examined by the Income Tax Department (ITD) and the return is scrutinized. This scrutiny includes confirmation of the credentials of the information filed in the return. If the ITD notes any anomaly or any inconsistency, it can issue a notice to the assessee requesting further explanation or information.

Assessment Order: The assessment order is then issued by the Assessing Officer (AO) based on all the information available together with the same conclusion on the tax liability of the assessee. This order may involve a change on the income reported, on the deductions claimed as well as the taxes paid.

Appeals and Revisions: The assessee has the privilege to protest against the assessment order if its contents do not please the parties involved. The above appeal can be filed with the Commissioner of Income Tax (Appeals) and further to the Income Tax Appellate Tribunal (ITAT). In some circumstances, the ITD also enjoys the prerogative to alter an assessment order.

TYPES OF ASSESSMENT:

The Act provides for different types of assessments, each with its unique characteristics and procedures:

Regular Assessment: This is the most prevalent category where the AO affirms or computes the taxable amount from the return filed by the assessee. The AO also carries out the lawful adjustments of the declared income, subsidized, and the taxes payable depending on the information available to it.

Summary Assessment: This kind of assessment is useful where the income of the assessee is less or where the return that has been filed contains no fraud. The AO may give a summary assessment order but in this, it may not undertake a rigorous examination of the facts or the case.

Best Judgment Assessment: Such assessment is carried out where the assessee has not filed a return or where the information provided by the assessee is inadequate to enable the AO to compute the tax. The AO can, therefore, make an assessment based on the best judgment available even if it is not on the real income of the assessee.

Self-Assessment: This type of assessment is useful in the case of calculations where an assessee determines his/her tax amount and then pays the tax all by himself or herself. The assessee then submits a self-assessment return and the same is accepted or rejected by the AO.

Advance Assessment: This type of assessment is most useful for the following reasons; Where the assessee wishes to know the amount of taxes he will be required to pay before the end of the particular financial year, and. This is especially so especially to those with huge incomes from sources such as capital gains or dividends.

Provisional Assessment: This type of assessment is relevant when the assessee has not been in a position to file the return on the said time frame because of some reasons beyond their control. The AO may condone the delay in filing the return and let the assessee file a provisional return.

Scrutiny Assessment: This kind of assessment is carried out when the AO has reasonable doubt as to the accuracy of information declared by the assessee in his return. The AO can adopt a close examination of the return to the question of seeking explanations or further proof from the assessee.

Special Assessment: This type of assessment is useful when the AO has grounds to believe the following: The assessee has concealed income or has evaded tax. The AO has powers to conduct search and seizure operations and make a specially arranged assessment and the assessee will attract penalties.

THE RELEVANT PROVISIONS OF THE ACT ARE OUTLINED AS FOLLOWS:

Several sections of the Act deal with the assessment process, including:

Section 142[2](Assessment Procedure): This section presents the general description of the assessment procedure, mentioning the authority of the AO to alter the income, deductions, and taxes to be paid.

Section 143[3](Assessment Order): It relates to the making of the assessment order by the AO. It also provides for the details of the assessment order, and the time limit within which the assessment order must be made.

Section 144[4](Summary Assessment): This section makes provision for the summary assessment in some circumstances as where the income of the assessee is less than a prescribed amount or where the return has been filed without any flaw.

Section 145[5](Best Judgment Assessment): This section authorizes the AO to make a best judgment assessment where the assessee has failed to file a return or lacked sufficient information.

Section 147[6](Reassessment): This section enables the AO to review the income of the assessee if specific circumstances are obtained such as the obtaining of new evidence or where an arithmetical or other mistake has been made in the course of making the assessment.

Section 148[7](Reopening of Assessment): This section endows the AO with powers to ‘re-open assessment’ when there are circumstances such as discoveries of new facts or events, or mistakes that were committed regarding the assessment.

Section 153[8](Search and Seizure): This section relates to the authority that is vested in the ITD to undertake search and seizure operations in instances of suspected tax fraud.

Section 154[9](Rectification of Mistakes): The section also enables the AO to correct some of the errors that were made in the assessment order if these are realized at a given point in time.

Section 155[10](Appeals): In this section, provision is made for the argument of appeal against the assessment order by the assessee.

Section 156[11](Revision): This section allows the ITD to change or alter an assessment order under some conditions; likewise, the assessee can also appeal the assessment order under some circumstances.

TYPE OF ITR FORMS:

The Act provides for other modes of filing returns depending on the type of income as well as the class of the assessee. Some of the commonly used ITR forms are:

ITR-1 (Sahaj): This form is completed by those with gross income from salary, pensions, and interest only.

ITR-2: This form is to be filed by those people who earn income from capital gains, house property, and other sources.

ITR-4:This form applies to those who are working on their own and earn income from speculative business or the income of structures.

ITR-4 (Sugam): This form is completed by those people who are involved in trade and business or profession and whose total income is less than a specified amount.

ITR-5:This form is used by firms, companies, and other similar entities.

ITR-6:This form is required to be filed by any company that is governed by Section 8[12]of the Companies Act of the year 2013.

ITR-7:This return is filed by the trusts, societies, and other non-business entities.

IMPORTANCE OF ACCURATE ASSESSMENT:

It held that precise evaluation is beneficial to both the assessee and the ITD. For the assessee, it means that they are in a position to pay the right amount of tax needed and also prevent penalties. The ITD makes sure that the government gets the right amount of revenue and also the propriety of the taxation procedures.

CHALLENGES IN ASSESSMENT:

The assessment process faces several challenges, including:

Complex Tax Laws: The Act is complex and dynamic and hence a common however informed taxpayer struggling to comprehend and meet his obligations and more importantly the legal requirements are a reality of the modern tax world.

Lack of Awareness: Justified by the fact that most taxpayers particularly individuals do not have adequate knowledge of their tax responsibilities and penalties for exemption.

Tax Evasion: Tax fraud involves situations where some of the taxpayers try to avoid paying tax by suppressing part of their income or declaring unnecessary expenses.

Disputes and Litigation: This creates conflicts that may take long periods between the assessee and the ITD through litigation.

CONCLUSION:

The Indian tax system is very effective as every individual and entity is assessed to ensure that every person pays his or her fair share of taxes. Assessment is well covered within the Act under different stages, types, and sections relating to it. Thus, several issues like extensive tax legislation, people’s ignorance, and systematic attempts to avoid taxes remain essential barriers to the successful performance of the assessment. Thus, it becomes incumbent upon the ITD and taxpayers to collectively strive to assess the taxes accurately to provide for a more effective and efficient tax system.

[1] The Income Tax Act, 1961(Act 43 of 1961), s. 142(1).

[2] The Income Tax Act, 1961(Act 43 of 1961), s. 142.

[3] The Income Tax Act, 1961(Act 43 of 1961), s. 143.

[4] The Income Tax Act, 1961(Act 43 of 1961), s. 144.

[5] The Income Tax Act, 1961(Act 43 of 1961), s. 145.

[6] The Income Tax Act, 1961(Act 43 of 1961), s. 147.

[7] The Income Tax Act, 1961(Act 43 of 1961), s. 148.

[8] The Income Tax Act, 1961(Act 43 of 1961), s. 153.

[9] The Income Tax Act, 1961(Act 43 of 1961), s. 154.

[10] The Income Tax Act, 1961(Act 43 of 1961), s. 155.

[11] The Income Tax Act, 1961(Act 43 of 1961), s. 156.

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