Local Authority

A Local Authority refers to an administrative body established under a law to govern and manage local affairs within a specific area, such as a municipality, panchayat, or other local government institution. Local authorities are responsible for providing essential civic services and infrastructure, including water supply, sanitation, roads, and public health facilities.

Examples of Local Authorities:

Municipal Corporations (for large cities)

Municipal Councils (for smaller towns)

Panchayats and Zilla Parishads (for rural areas)

Port Trusts

Improvement Trusts or Development Authorities formed under state laws

Functions of a Local Authority:

Maintenance of public infrastructure such as roads, parks, and drainage systems.

Collection of local taxes (property tax, water tax, etc.).

Regulation of building construction and urban development.

Public health and sanitation management.

Implementation of welfare and development programs within their jurisdiction.

Taxation and Income: As per Section 10(20) of the Income Tax Act, 1961, certain incomes of a local authority are exempt from income tax. Income derived from activities such as water supply, drainage, or housing projects for the public is generally not taxable. However, income from commercial ventures may be subject to tax depending on the nature of the activity. Assessment Year (AY) and Financial Year (FY) Connection The Financial Year (FY) is the period in which the local authority earns income, typically from April 1 to March 31. The Assessment Year (AY) is the following year in which the income of the previous FY is evaluated and taxed (or exempted) by the Income Tax Department.

Example: If a municipal corporation earns income in FY 2022–23 (April 1, 2022 – March 31, 2023), that income will be assessed in AY 2023–24 (April 1, 2023 – March 31, 2024).