Income of a person is computed under the following five heads:
Method of Accounting
Mercantile system: - Under this method income and expenditure are recorded at the time of their occurrence during the Previous Year. Similarly, expenditure is recorded if it has become due during the Previous Year irrespective of the fact whether it is paid during the Previous Year or not.
Cash System: - Under this method revenue and expenses are recorded only when they are received or paid.
Charge of income tax
The following basic principles are followed while charging tax
Income tax is an annual tax on income.
Income of previous year is charged in the next following assessment year at the tax rates applicable for the Assessment Year. This rule is, however, subject to some exceptions.
The tax is levied on the "total income" of every assessee computed in accordance with the Provisions of the Act.