Q.Define the terms: Assessee, Previous Year, and Assessment Year.

Agricultural income in India is fully exempt from income tax, so the answer is (b).

Among the basic concepts under the Income Tax Act, certain incomes are exempt and do not form part of taxable income. Agricultural income earned in India is one such exempt income (under Section 10(1)).

• It is fully exempted, not fully taxable (a).
• It is still recognised as income (though not taxed), so (c) 'not considered for income' is not the precise treatment; the correct legal position is that it is exempt from tax.
• Hence (b) Fully Exempted is correct.

(Note: while agricultural income is exempt, it may be considered for the limited purpose of arriving at the tax rate on non-agricultural income; but as an item, it is fully exempt from tax.)

The year in which income is earned is called the previous year; the following year, in which that income is assessed and tax is paid, is the assessment year. So the earning year here is the previous year.

The Income Tax Act separates the year of earning from the year of taxing:

• Previous year — the financial year (1 April to 31 March) in which the income is actually earned. It is the year whose income becomes the base for tax.
• Assessment year — the financial year immediately following the previous year, in which the income of the previous year is assessed to tax and the tax is actually paid.

The stem describes the year in which income is earned (tax being paid in the next year) — that is by definition the previous year. Calendar year (Jan-Dec) and "light year" (a unit of distance, not time) are distractors.

This is a basic concept every Tamil Nadu HSC Commerce (Class 11) student meets in the Direct Taxes chapter.

The year in which income is earned is known as the previous year, so the correct option is (d).

The direct taxes chapter in the Tamil Nadu HSC Commerce syllabus explains the basic concepts under the Income Tax Act.

• The previous year is the financial year in which income is actually earned.

• The assessment year is the year following the previous year, in which the income earned is assessed and taxed. So option (b) refers to the taxing year, not the earning year.

• "Calendar year" and "light year" are not relevant income-tax terms.

The answer is option (d) Fully Exempted.

Under the Indian Income Tax Act, 1961, agricultural income is treated as an exempt income under Section 10(1) and does not form part of total income for the purpose of charging income tax. This is because agriculture is a State subject, and the Centre does not levy income tax on it. (It is only aggregated with other income in certain cases to determine the rate of tax — the partial-integration rule — but the agricultural income itself is not taxed.) Therefore agricultural income in India is fully exempted.

The correct answer is (a) 1st April to 31st March. Both the previous year and the assessment year run from 1st April to 31st March.

In the Tamil Nadu HSC Commerce syllabus, two basic Income Tax concepts are important:

• Previous Year (PY) — the financial year in which income is actually earned; it runs from 1st April to 31st March.
• Assessment Year (AY) — the financial year immediately following the previous year, in which that income is assessed and taxed. It also runs from 1st April to 31st March.

For example, income earned in the previous year 1st April 2019 – 31st March 2020 is assessed in the assessment year 1st April 2020 – 31st March 2021. Both follow the Indian financial-year cycle, so the correct period is 1st April to 31st March.