Income tax is a direct tax on the income earned by individuals, firms and companies during a financial year (April–March in India). Businesses compute taxable profit from their books and file an income-tax return; clean double-entry accounts make this far simpler and more defensible.
Income tax is distinct from GST: GST is an indirect tax on supplies, while income tax is on profit. Both rely on accurate, well-kept books.
Taxable profit rarely equals book profit. The computation starts from the profit and loss account, then adjusts: depreciation is recomputed at rates prescribed under the Income-tax Act, certain expenses are disallowed — personal spending, penalties, payments made without deducting TDS where required — and eligible deductions are applied. The adjusted figure, not the accounting profit, is what the return declares and tax is charged upon.
Payment is spread across the year rather than settled once. Tax arrives through TDS suffered on receipts, advance-tax instalments paid on prescribed due dates, and a final self-assessment payment when the return is filed; shortfalls attract interest. For small businesses and professionals, presumptive schemes offer a shortcut — declaring income as a prescribed percentage of turnover, subject to eligibility limits as notified — trading precision for far lighter book-keeping obligations.
Cross-matching has changed the compliance landscape. The department compares the turnover in GST returns with the turnover in the income-tax return, and the Annual Information Statement compiles interest, dividends, property deals and large expenses against each PAN, so gaps generate automated notices. Proprietors mixing household spending with business expenses, or banking sales in personal accounts, create exactly the mismatches this machinery is built to catch.