Doing tax is one of the most tedious things you have to do as an adult. It must be one of the first things that you have to learn after living on your own and start working. People often suggest that they should teach how to taxes in schools or colleges because sometimes it can be a little hard to understand. More than the tax itself, doing the paperwork as well as knowing the basic characteristics of taxes is what gives a headache.
Do you there is a way to avoid these headaches? Yes, there is. If you find the answers to common tax questions. But how will you do that? Do you have anyone whom you can ask all these things or you are too proud to ask about simples things like Tax? Whatever this is, we have got your back.
This article is fully dedicated to all those who have been looking for common tax questions and their answers. Because this way they can know everything about the tax and finally do the taxes in the right way. So let’s not waste anymore of your time and get you a list of Tax Questions and their answers so you will what you need to do next.
Q1.What is income tax? How is it calculated?Ans-Income tax is an annual tax charged on income of a person by the government. It is charged for the corresponding assessment year at the rates laid down by the Finance Act for the assessment year in respect of the previous year.
Q2.I realized after I filed that I made a mistake. What do I do?Ans-Cop to it. The longer you wait, the more you’ll owe in interest and penalties if the I.R.S. finds out. You’ll need to fill out a new 1040 with the corrected information, and a 1040x form. We explain how to do all that, plus when and how you should file an amended return in our post on fixing a tax mistake.
Q3.Will I get audited? What happens if I do?Ans-The short answer: probably not. If you make less than $200,000 there’s a 1 in 98 chance you could be audited, according to 2011 figures. This number might even go down in 2013, with I.R.S. budget cuts due to the sequester.–You’re more likely to get audited if you do something that the I.R.S. considers evidence that you’re trying to game the system, like taking really big deductions on a very low income or putting in nice, neat round numbers that all end in 00. Learn the most common audit triggers and how to avoid them.–But if you do get audited, it might not be so bad. Most likely, it will be conducted by mail (only about one in five audits involve your showing up in person or an auditor showing up to your business or home), and the I.R.S. will just ask for back-up documentation. That’s why you should be very organized and keep your documentation for deductions, retirement contributions, HSA distributions and anything else you claim around for several years, in case the I.R.S. asks for proof.
Q4.Define Assessment Year.Ans-Assessment year is the period that starts from 1 April and ends on 31 march. It is the year immediately succeeding the financial year wherein the income of the previous financial year is assessed. Government use assessment year for calculating tax on the previous year.
Q5.Define Previous Year.Ans-Previous Year is the year in which the income earned becomes taxable in the following assessment year. It can be stated as the Financial year preceding the Assessment year. For example- If the present assessment year is 2015-16 then the previous year will be 2014-15
Q6.Define financial year?Ans-A twelve month period starting from 1 April and ending at 31 March which is used for calculating various annual financial statements in businesses and organization is known as financial year.
Q7.Differentiate between Financial Year, Assessment Year and Previous Year?Ans-Assessment year and previous year are the types of financial year which consists of twelve months starting from 1 April to 31 March. Previous financial year is the preceding year of assessment financial year.
Q8.Define the term person?Ans-A “person” means an individual, an ordinary partnership, a non-juristic body of person and an undivided estate. The term “person” under the Income Tax Act includes an individual, a Hindu Undivided Family, a Company, a Firm, an Association of Persons, a Local Authority and Artificial Juridical persons.
Q9.Who is an assessee?Ans-An “Assessee” is a person who is liable to pay tax or any other sum of money under the Act.
Q10.At what rate firms are required to pay tax on their income?Ans-Income Tax is paid at 30% of taxable income. Surcharge is charged at 10% of the Income Tax, where taxable income is more than Rs. 1 crore. (Marginal Relief in Surcharge, if applicable) and Education Cess is 3% of the total of Income Tax and Surcharge.
Income Tax Questions And Answers
Q11.Which income is considered as accrued income?Ans-Income which has been earned but not yet received is known as accrued income. Income is recorded in the same accounting period in which it is earned rather than in the subsequent period in which it will be received.
Q12.What is FBT?Ans-1. FBT stands for Fringe Benefit Tax which is a tax that an employer has to pay in respect of the benefits that are given to his/her employees.2. Fringe benefits is something that an employer provides to his employees in addition to the cash salary. FBT is payable in lieu of the value of fringe benefits provided or deemed to have been provided by an employer to his employees during the previous year.
Q13.What is tax audit?Ans-A tax audit is assessment of an organization’s or individual’s tax return by Internal Revenue Service (IRS) in order to find out that the income and deductions are recorded accurately.
Q14.What is Tax refund?Ans-The excess tax paid by an individual than the actual owed is returned by the government which is known as tax refund. After taking into consideration income tax, withholdings, tax deductions or credits and other factors; you file income tax for the year, after that you will receive a tax refund.
Q15.Who are resident but not ordinary resident?Ans-A resident but not ordinary resident is the one who is not the resident in India for 9 out of the 10 preceding previous years or he has during the 7 preceding years been in India for a period of, or period amounting to 729 days or less.
Q16.How many heads are there under total income? Name them.Ans-There are five heads under total income. They are-Income from SalariesIncome from house propertyProfits and gains of business or professionCapital gainsIncome from other sources
Q17.What do you understand by total income?Ans-Total Income is the amount on which the Income Tax is paid. Total income include all income that accrue, arise, earned or received in India (except those income which accrues or arises outside India). Total Income is the total amount earned by an individual or organization, including income from employment or providing services, revenue from sales, payments from pension plans, income from dividends, or other sources. Total income is generally calculated for the assessment of taxes, evaluating the net worth of a company, or determining an individual or organization’s ability to make payments on a debt.
Q18.What is deferred tax?Ans-A tax liability that a company has to pay but does not pay at that current point and it will be responsible for paying it in future is termed a deferred tax. Deferred tax occurs due to the difference in a company’s balance sheet, due to the differences between accounting practices and tax regulations.
Q19.What is working capital?Ans-Working capital is the difference between a company’s current assets and its current liabilities. Working Capital is used into day to day operations of any business.WC= CA-CL
Q20.What is Taxation?Ans-Taxation is one of the mode used by the government to finance their expenditure by imposing charges on citizens and corporate entities. Government levy tax on citizens to encourage or discourage certain economic decisions.
Taxation Questions And Solutions
Q21.What is alternative minimum tax (AMT)?Ans-The Alternative Minimum Tax (AMT) is a way to restrict wealthy taxpayers from tax evasion. AMT uses a separate set of rules to calculate taxable income after allowed deductions. This is generally for higher income group as AMT sets a limit on certain benefits that reduces a taxpayer’s regular tax amount. As a result, if the benefits on tax reduce total tax below AMT limit, taxpayer has to pay the higher AMT amount.
Q22.What is Excise & Service Tax? What is the difference?Ans-Excise tax is an indirect tax that is imposed on the manufacture, sale or use on certain types of goods and products. Excise taxes are generally imposed on goods such as cigarettes or alcohol, also in the price of an activity such as gambling. Excise taxes may be imposed by both Federal and state authorities.–Service tax is an indirect tax imposed by the government on service providers on certain service transactions, but is actually paid by the customers. Services provided by air-conditioned restaurants and short term accommodation provided by hotels, inns, etc are included in the taxable services.–The major difference between excise tax and service tax is that excise tax is charged on manufactured goods and sales tax is imposed on certain services provided.
Q23.What is luxury tax?Ans-A tax imposed on goods and services that are non-essential or not included in the necessities. Luxury tax is included in the indirect tax and is incurred by those who purchase or use the product. Ad valorem tax or progressive tax are some luxury tax that is imposed on high priced goods such as cars above a certain value or engine size, villas etc.
Q24.What do you mean by Commercial Tax?Ans-Commercial Tax is a tax imposed on the scheduled Commercial goods as indirectly collected by the seller or purchaser against his business transaction which now comprises of Sales Tax, Entertainment, Luxury Tax, Entry Tax and Profession Tax.
Q25.How can a taxpayer get a refund for an overpayment of taxes?Ans-There is a provision in India to get a refund for an overpayment of taxes along with interest. When you have to claim a refund you need to file the income tax return within a specified period. You can even track your refund status from the NSDL-TIN website by clicking in Status of Tax refunds and can track your refund by entering PAN and Assessment year for which the refund is to be claimed.
Q26.What do you understand by transfer income?Ans-Transfer of Income means when someone retains the ownership of an asset but makes an agreement to transfer its income, but still the income is considered as your income and it will be added to the total income.
Conclusion – I ain’t it simple? Okay, it’s not but it’s not that tough either. You just need to clarify all your questions so that you know exactly what you need to do. Have no doubts in your mind because doing the taxes in the right way is pretty important in almost any country in the world.
We have made this list for all of those who have become newly independent and the ones that are facing a little trouble doing their taxes. We just hope that we did a good enough job and provided you with everything that you have been looking for. Thank you, we hope we could help.