Income Tax Act 1961
Owing to the constitutional powers of Article 265, which clearly states that no tax shall be levied or collected except by the authority of law, the taxes collected from income sources has constitutional grounds vested in the Income Tax Act of 1961. The Central Government has the power to apply taxes on income other than agricultural income as per entry 82 under list I of Schedule VII of Article 246. For administrative reasons pertaining to monitoring income-related taxes, the government has appointed an entity known as the Central Board of Direct Taxes or CBDT. They are involved in the planning and policy framing of direct tax-related queries. The income tax act is a vast and elaborate law that explains all the norms and regulations that a citizen and the authorities must adhere to when collecting taxes. This guide explores all the aspects of the Income Tax Act of 1961.
What is the Income Tax Act 1961
The Income Tax Act of 1961 is a law that allows the central government to levy tax on the citizens, which arises from five major categories: income from salaries, income from house property, income from business profit or gain revenue, income from capital gains, and income from other sources. Here the income from salaries covers the revenue earned through employment. Anyone working in an office setup will be included in this category. The income from house property would include any rental revenue earned through a building, apartment, or land. The income earned through profits naturally means any business-related gains. Furthermore, any revenue earned through investments and capital appreciation can be income from capital gains. Lastly, income from other sources will include any revenue not mentioned in the previous sections.
Chapters of Income Tax Act 1961
Being one of the most popular Acts, the income tax act of 1961 has various sections and subsections. These are devised for clearly stating how a tax should be paying their taxes and the applicable policies framed for the same. There are 23 Chapters in the Income Tax Act of 1961. These Chapters are further divided into 298 Sections. Any citizen of India will gravely benefit from knowing all the aspects of the Income Tax Act 1961, as taxes make one of the core expenses for everyone. Here, the chapters of the Income Tax Act 1961 are explored in brief.
Chapter I covers the preliminary sections, which introduce the Act, and consist of important definitions and define what a previous year is. This information is covered within sections 1 to 3.
Chapter II of the Income Tax Act of 1961 makes for the basis of charges. These are explained in sections 4 through section 9B. The basis of charge defines the taxable aspects of income. The explained topics in Chapter II include the charge of income tax, the scope of total income, the residence of India definition, income deemed to be received, dividend income, and income deemed to accrue in India.
Chapter III of the Income Tax Act of 1961 explores the aspects of income that are exempted and do not form a part of the total income. The sections covered in Chapter III include sections 10 to section 13B, which majorly explore income not included in total income, income from charitable and religious property, contributed revenue from institutions and trusts, and exemptions in revenue from religious properties.
Chapter IV of the income tax act 1961 explains income calculation clearly. One can use the information provided to know what all aspects of income are considered. This huge chapter is explicated from section 14 through section 59. Chapter IV deals with heads of income, salaries, deductions, special provisions, profits and gains, depreciation, allowances, rebates, expenditures, and so on.
The chapter V of the Income Tax Act of 1961 explains the income of third parties that are also counted among the assessee's income. The sections that cover this aspect of the income tax act 1961 range from section 60 through section 65. The particulars that are covered include income transfer without any asset movement, any transfers that cannot be cancelled for a specific duration, definition of transfer and revocable as per income tax standards, aspects of income that are included in the individual’s revenue, and any liability that comes with including third parties.
Chapter VI, VIA, VIB
Chapter VI, VIA, VIB of the Income tax act 1961 depicts how the income is aggregated and how any losses are carried forward. This chapter explores this idea from section 66 through section 80. The main focus involves the calculation of income, methods of calculation, credits, unexplained investments, borrowed amounts, and various kinds of losses.
Chapter VII is the most popular chapter of the income tax act 1961 that explains the clauses that come under the non-payable taxes. Sections 81 to 85C explore all the laws that set-asides the part of the income that need not be involved in the payable taxes category. Section 86 defines the share of members and deductions on taxes under certain cases.
Chapter VIII of the Income Tax Act 1961 explains all the cases that provide rebates and relief in payable tax. The sections that explain these clauses start from 87A to 89A. The sections explain cases where rebates are allowed in computing income-tax, specific individuals, investments, senior citizens, securities, reliefs, etc.
Chapter IX of the income tax act focuses on tax reliefs pertaining to income from foreign lands. The benefits of double tax relief are explained in sections 90 and 91.
Chapter X, XA
In chapter X of the act, the law explains the cases with special provisions for the avoidance of taxes. These are explored through sections 92 to 94B. Some of the themes that can be seen in this chapter include the calculation of foreign transactions on openly agreed rates and the definition of terms such as associated enterprise, international transaction, domestic transaction, and so on. Moreover, chapter XA deals with anti-avoidance rules, their applicability, their consequences, and other related norms.
The Chapter XI of the tax act majorly deals with rules about undistributed revenue gains and their related taxes. The sections that explore these provisions cover from section 104 to section 109. The main aspects include income tax on undistributed income, benefits for specific companies, the due date for making orders, and so on.
Chapter XII, XIIA, XIIB, XIIBA, XIIBB, XIIBC, XIIC, XIID, XIIDA, XIIE, XIIEA, XIIEB, XIIF, XIIFA, XIIFB, XIIG, XIIH
Chapter XII specifies certain special cases where taxes are determined differently. This is explored from sections 110 through 115BBI. Chapter XII's major aspects include the computation of income tax on revenue, including non-taxable income, provident fund balance, capital gain revenue, tax on dividends, income from foreign capital, and many more.
- With Chapter XIIA, the IT Department has set certain norms for non-resident income and related income tax calculation formats.
- Chapter XIIB explores provisions for companies.
- XIIBA is set for individuals who are other than companies.
- Chapter XIIBB looks for provisions related to converting an Indian bank branch in a foreign country into a subsidiary company.
- Chapter XIIBC extends its laws for the already existing subsidiaries of Indian banks in foreign countries.
- Chapter XIIC explores the provisions for retail trades.
- Chapter XIID gives guidelines for provisions related to income tax on distributed income gains of companies.
- Chapter XIIE provides norms for distributed incomes.
Chapter XIII of the income tax act of 1961 defines the income tax authorities, their provisions, jurisdiction, and control. This segment is explored in detail till section 138.
Chapter XIV, XIVA, XIVB
Chapter XIV explains the procedure for the assessment of income tax. Citizens can educate themselves pertaining to the return of income, PAN Card, Aadhaar Number, and various aspects of assessment. This chapter is detailed from section 139 to section 158. chapters XIVA and chapter XIVB is explained from section 158A to section 158BI.
Chapter XV of the Income Tax Act gives instructions on liabilities in cases that are specific. These include representations, executors, assesses, unknown beneficiaries, etc. The sections that cover these laws start from section 159 to section 181.
Chapter XVI of the Income Tax Act 1961 explores the provisions for firms. These are explained from section 182 to section 189A. The major theme revolves around assessing various kinds of firms, such as registered, unregistered, dissolved, etc.
Chapter XVII specifically deals with the collection and recovery of income tax. This has been explored from section 190 to section 234H.
Chapter XVIII engages citizens with information on relief respecting tax on dividends. These are explained from section 235 to section 236A.
Chapter XIX deals with refund laws, settlement cases, disputes, and related rules of income tax. These are explained from section 237 to section 245W.
Chapter XX deals with the appeals, revision cases, acquisition, and payment methods related to income tax. Citizens can read about orders that can be claimable, parties who can initiate an appeal, procedures, and so on. These are explained from section 246 to section 269UP.
Chapter XXI explains the cases where penalties and charges are applicable. This can be due to failing to provide correct information, misrepresentation, failure to get audited, false estimations, etc. The sections covering these laws start from section 270 to section 275.
Chapter XXII explores the cases where offences and prosecutions are applicable. This chapter deals with unlawfulness, not complying with the rules, and willful attempts to evade taxes. Furthermore, the chapter also explains the consequences of the said unlawful acts. The rules are explained from section 275A to section 280ZE.
The last income tax act of 1961 details everything missed in the previous chapters.
Sections of the Income Tax Act 1961
The Income Tax Act of 1961 is majorly divided into chapters which are further divided into sections, and then sub-sections, which are further divided into clauses and sub-clauses.
First Ten Sections of Income Tax Act 1961
- Section 1 mainly focuses on SETA. This means Scope, Extent, Title, and Applicability. Scope makes it clear that income tax applies to all incomes except agricultural income. Extent means that the law is applicable in the whole of India. When it comes to Titles, every law has been given two kinds of titles, i.e. a long title and a short title. The act that does not define a purpose is known as a short title; naturally, the one that explains a purpose will be called a long title.
Finally, the Applicability part explains that the law is applicable from April 1, 1962.
- Section 2 focuses on Definitions. This section clarifies who is included in the law and who is excluded from it. The inclusive definitions are generally considered open to interpretation, whereas an exhaustive definition would mean the boundaries are well-defined.
- Section 3 looks into what a previous year is. Since taxes are to be paid for a previous year, section III of the Income Tax Act 1961 defines the previous financial year.
- Section 4 is considered a crucial section because it mainly focuses on the charges applicable for payment. This section looks into exactly what taxable income is and what is to be levied. As per Section IV of the Income Tax Act of 1961, the total income earned by a person in the previous year will be assessed as per the prevailing tax rates.
- Section 5 of the Income Tax Act of 1961 explores the scope of Total Income. This can be divided into income accrued, deemed to be accrued, received, and deemed to be received within the country, and the income accrued, deemed to be accrued, received, and received from foreign countries.
- Section 6 explores the definition of residential status. What will be considered a resident and a non-resident are explicated in Section VI of the Income Tax Act of 1961.
- Section 7 focuses on the income that is deemed to receive in India.
- Section 8 explains what a dividend income means.
- Section 9 looks into the revenue deemed to be accrued in India.
- Section 10 to Section 13 finally delves into the incomes that are exempted from taxable income. This can be seen as a relief for the taxpayers as the government has only explained what taxable income will be until section 10. It will be beneficial for the taxpayers to know what incomes are exempted from the law.
Top Five Sections of Income Tax Act 1961
- Section 80C of the Income Tax Act 1961 is one of the taxpayers' most important and relevant sections. This section provides the provision to claim up to INR 1,50,000 of their losses in tax deductions. Section 80C allows taxpayers to show investments about life insurance premiums, PPF, NPS, ELSS, and tax-saver term deposits. These investments can be further used to seek deductions in tax payments. Consumers will be eligible for refunds in this case.
- Section 80CCC of the Income Tax Act of 1961 allows eligible individuals to get tax deductions on investments made for pension schemes. This section not only allows consumers to save for their retirement but also allows them to get tax benefits while making investments.
- Section 80CCD of the income tax act 1961 is based on taxpayers investing in government-backed pension schemes such as National Pension Scheme and Atal Pension Yojana.
- Section 80TTA of the Income Tax Act 1961 lets taxpayers get benefits of up to INR 10,000 in their savings account. Since banks provide nominal interest on savings, some provisions account holders can claim refunds as per this section. If the interest earned is more than INR 10,000, they will be liable to pay taxes.
- Section 80TTB of the Income Tax Act of 1961 is a special provision for citizen individuals above the age of 60 that they can seek benefits of up to INR 50,000 on revenue earned through bank deposits, post office deposits, and savings from cooperative banks and societies.
What are the Objectives of the Income Tax Act 1961?
Taxes make up for the lack of funds for a country to fast pace its development and infrastructure. With the introduction of the Income Tax Act of 1961, several fronts got organised in terms of taxation. This majorly owes to the objectives for why the act was introduced in the first place. Here are some of the objectives of the income tax act of 1961.
- With the Income Tax Act 1961, taxes are being levied, keeping in mind the revenue generation of the individuals. Where the affluents are liable for paying more taxes, the marginal and low to middle-income earners can take a breather. This is one of the non-revenue objectives that the act is accomplishing.
- As trading and imports incur a massive expense for the government to promote self-reliance, there have been importing barriers with taxation. This majorly accomplishes domestic production for goods and services usually imported from other countries.
- The Income Tax Act aims to achieve a balance in case of market fluctuations. This means that when market prices are down, the taxes are increased to maximise fund generation, which balances out scenarios when market prices are high, and taxes are reduced to minimise the toll on the taxpayers.
- Implementing the Income Tax Act of 1961 boosted the country's economic growth through fund generation, allowing citizens to hold on to their purchasing power and contribute to their country’s economic development.
Current Deductions under IT Act, 1961
Income Tax Act has provided various provisions about claimable deductions, explained in chapter VI A of the act. These are because of encouraging more investments from taxpayers. With these provisions, investors can claim attractive tax deductions, reducing their overall expenses. The current deductions under the Income Tax Act of 1961 are as follows.
Section 80 of the income tax act has several tax benefits for residents involved in investing in insurance premiums, pension funds, savings accounts, home rent, education loans, etc. Section 80 allows taxpayers to benefit from up to INR 1,50,000 every financial year. The eligibility criteria are also basic. For example, individuals, companies, firms, HUF, LLPs, etc., can claim benefits under the act. Some of the popular norms are explained in the following sections.
- Section 80 C - Investors investing in instruments like ELSS, NPS, ULIP, Tax Saver FD schemes, PPF, government schemes, etc., can claim tax deductions under the act. There could be a lock-in period depending on the scheme.
- Section 80 CCC - This section deals with tax deductions for contributions towards pension schemes.
- Section 80 TTA - This section deals with tax deductions for contributions towards savings accounts. There are provisions to claim up to INR 10,000 for interest earned from a savings account.
- Section 80 G - Any donations towards social welfare and cause can be used for a tax deduction.
- Section 80 GG - This section deals with savable tax money if shown that one is paying home rent monthly. Furthermore, employees who are not receiving any Home Rent Allowances from their company can fill up the section 80 GG form for their claim.
- Section 80 E - If any individual or group has taken a loan for education, the interest expenses can be shown for availing tax deductions as per section 80 E.
- Section 80 EE - If any individual or group has taken a loan for home-buying or renovation, the interest expenses can be shown for tax deductions as per section 80 EE.
- Section 80 D - Medical insurance is necessary in this expensive world. Anyone invested in medical insurance premiums can claim deductions under section 80 D of the income tax act.
- Section 80 DD - There are provisions for individuals dependent on disabled citizens. They can get additional tax benefits for the rehabilitation of disabled citizens.
- Section 80 DDB - Any medical expenditure incurred can be claimed under section 80 DDB of the income tax act. This can be for self or on behalf of any close relative.
- Section 80 U - There is a provision for tax deductions under section 80 U for disabled citizens up to INR 75,000 annually.
Schedules of the Income Tax Act
There are 14 schedules of the Income Tax Act. Here is a brief presentation of the themes each schedule goes with.
- Schedule 1 - Insurance Business
- Schedule 2 - Procedure for Recovery of Tax
- Schedule 3 - Procedure for Distraint
- Schedule 4 - Recognised Provident Funds
- Schedule 5 - List of Articles and Things
- Schedule 6 - Cases Omitted by the Finance Act, 1972
- Schedule 7 - Minerals
- Schedule 8 - List of the Industrially Backward States and Union Territories
- Schedule 9 - Cases Omitted by the Taxation Laws
- Schedule 10 - Cases Omitted by the Finance Laws
- Schedule 11 - List of Articles
- Schedule 12 - Processed Minerals and Ores
- Schedule 13 - List of Articles
- Schedule 14 - List of Articles
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Frequently Asked Questions (FAQs)
What is meant by the Income Tax Act 1961?
Income Tax Act of 1961 is an act which was rolled out to improve and organise the country’s taxation system, thereby enhancing economic development. The act guides citizens about norms and regulations pertaining to income tax payments.
What are the objectives of the Income Tax Act 1961?
Some of the major objectives of implementing the Income Tax Act 1961 include the development of the economy, job creation, and balancing.
What are the components of Income Tax law in India?
The components of Income Tax law include 14 schedules along with 298 sections.
Which income is exempt from Income Tax Act 1961?
As per the income tax act, whatever revenue is generated from agricultural produce is exempted from the Act of 1961.
What are the salient features of the Income Tax Act 1961?
The major purpose of the Income Tax Act of 1961 is to extract the taxable fees from the tax-paying citizens smoothly while also providing them solutions pertaining to claimable deductions.
How many Schedules are there in the Income Tax Act 1961?
There are 14 schedules in the Income Tax Act.
Who is a person as per the Income Tax Act 1961?
A person, per the Income Tax Act law, is defined as any individual, company, firm, partnership firm, HUF, and so on. It is anyone subject to the discussion involved pertaining to the income tax act.