Overview of Income Tax Act
The Income Tax Act, as appears from its name, is a Legislation Act, which regulates and levies tax on income. In India, the governing laws wrt Income Tax are:
- Income Tax Act 1961
- Income Tax Rules 1962
- Notifications and Circulars
- Annual Finance Acts
- Judicial Pronouncements (By Tribunals, High Courts and Supreme Court)
Salient features of income tax legislation in India are as under:
- It provides for the levy of this tax on all kinds of persons (be it individuals, companies, HUFs, firms, local authorities, etc.).
- The scope of taxation is wide. Tax is levied on Residential basis as well Source basis. If a person is Ordinary Resident in India, his global income shall be taxable in India. If a person earns income from a source in India, the same shall be taxable in India even if the person is not a resident of India, e.g. rent, interest, capital gains, etc.
- The residential status of person is a very key factor for determining taxation in various cases. A person can be Resident or a Non-Resident. Further, in the case of an individual, the person can be an ordinary resident, a non-ordinary resident, or a non-resident.
- Income can be of two types, i.e., Indian income and foreign income. Indian income is always taxable in India; however, foreign income is taxable in India in the case of resident assessees only.
- Income is defined under 5 heads of income, i.e., salary, rent, business/profession, capital gains, and residual income (i.e., income from other sources).
- There are tax slabs provided for individuals and HUF assessees, where income tax levy starts only if income exceeds a basic exemption slab. On other assessees, the income tax levy starts from 1 rupee.
- Certain incomes have been provided exemption from tax, i.e., exempted incomes.
- There are various deductions available under relevant income head as well as gross total income.
- There is a requirement of filing an income tax return by the assessees in respect of income earned during a financial year.
- Taxes are paid through TDS, advance tax, and self-assessment tax.
- For non-compliance of the tax regulations, interest and penalty provisions are applicable.
- Tax Officers (Assessing Officers) are given powers to reject or accept assessees claim by scrutinizing of ITRs filed by the assessee. On doing so, they are empowered to make additions in the income or reject the deductions and levy tax on such additions/rejections. Assessees are given an option to file an appeal against such additions/rejections.
