Overview of Income Tax Act

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 levy of this tax on all kind of persons (be it individual, company, HUF, Firm, Local Authority etc).
  • 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.
  • Residential status of person is a very key factor for determining taxation in various cases. A person can be Resident or Non-Resident. Further, in case of an Individual, the person can be Ordinary Resident, Non-Ordinary Resident or Non-Resident.
  • Income can be of two type i.e. Indian Income and Foreign Income. Indian Income is always taxable in India, however, foreign income is taxable in India in case of residents assessee 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 assessee, where income tax levy starts only if income exceeds a basic exemption slab. On other assessee, 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 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 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 appeal against such additions/rejections.