Income Tax Act

Every taxpayer should understand the income tax structure and its basic terminolgies used in India. All the major tax regulations have been drafted under the Income Tax Act 1961, on the basis of which the Indian Income Tax Department levies taxes.

What is Income Tax Act 1961

The Income Tax Act, 1961 is the regulation that oversees the imposition, administration, collection, and recovery of taxes levied on income generated in India. In its 298 sections and 23 chapters, this income tax charging statute states various responsibilities and provisions of taxpayers. 

In 2010, the GOI sought to replace this Act with the “Direct Taxes Code”, which was eventually scrapped. However, since the time it came into force on 1st April 1962, the Government of India has made several amendments to this Act.

Provisions of Income Tax Act 1961

There are various provisions under the Income Tax Act 1961. Here are some of the crucial ones-

  • Taxability of Income
  • Annual information and financial transaction statement
  • Assessing tax authorities
  • Undertaking transactions mode
  • Instructions to subordinate authorities

Application of the Income Tax Act

The act is implemented throughout India via the following –

  • Income Tax Rules, 1962

To administer and enforce direct taxes in India, the Central Board of Direct Taxes (CBDT) has put forth a set of rules. These rules are stated in the Income Tax Rules, 1962.

  • Finance Act 

The Ministry of Finance presents a Finance Bill in Parliament every year, usually in the last week of February. This bill contains several amendments to the prevalent direct and indirect tax regulations in the country. 

Both Lok Sabha and Rajya Sabha may recommend amendments and changes to this bill before passing it. After it is passed in the Parliament, the bill will have to undertake the President’s assent, after which, it becomes the Finance Act.

  • Judicial Announcements

The Supreme Court holds the right to address contradictions and make decisions for the correct implementation of income tax rules and laws. Mandates by this court will be applicable throughout the country. 

  • Government Notifications and Circulars

Notifications and circulars issued by the government and CBDT clear confusion and provide more transparency to the taxpayers and authorities regarding an Income Tax Bare Act and amendments.

Scope of Income Tax Act 1961

The table below defines the scope of the Income Tax Act 1961, based on the residential status of the assessee-

Income Type

Residential Status

Resident and Ordinarily Resident

Resident but not-Ordinarily Resident

Non-Resident

Accrued income in India

Taxable

Taxable

Taxable

Income Received/Deemed to be received in India 

Taxable

Taxable

Taxable

Untaxed past foreign income carried into the country

Non-taxable

Non-taxable

Non-taxable

Income accrues outside India, but the business/profession is inside the country

Taxable

Taxable

Non-taxable

Income accrues outside India, but the business/profession is outside the country

Taxable

Non-taxable

Non-taxable

Chapters of the Income Tax Act 1961

Here are the significant chapters of the act that highlight various income tax section rules and applicability-

Chapter Details
Chapter I Introduction of the Income Tax Act
Chapter IIB Beginning and Potential of the Act
Chapter III Income that does not form a part of the total income
Chapter IV Calculation of the total income
Chapter V Other income sources that form a part of the income, like capital gains, properties, businesses, etc.
Chapter VI Aggregation of income, carry forward of loss and set off
Chapter VIA Deductions applicable while calculating total income
Chapter VIB Restriction on certain deductions for companies
Chapter VII Parts of total income on which income tax is not applicable
Chapter VIII Applicable rebates/reliefs while computing income tax
Chapter IX Details about the double taxation relief
Chapter X Certain cases wherein assessees do not have to pay income tax
Chapter XA General anti-avoidance rules
Chapter XI Some additional tax implications on undistributed profits
Chapter XII Rules of tax calculation in certain special cases
Chapter XIIA Rules on certain Non-Resident Indian (NRI) income
Chapter XIIB Certain special tax provisions for certain companies
Chapter XIIBA Certain special tax provisions for specific limited liability partnerships
Chapter XIIBB Process of taxation for conversion of a foreign company into an Indian subsidiary
Chapter XIIBC Tax rules for companies that are resident in India
Chapter XIIC Certain special tax rules for retail trade
Chapter XIID Certain special Tax rules for the distributed profits of domestic companies
Chapter XII DA Special tax rules for the distributed income of domestic companies for buying back shares
Chapter XIIE Specifies special tax rules for distributed income
Chapter XIIEA Specifies special tax rules for distributed income by securitisation trusts
Chapter XIIEB Denotes special tax rules for accredited income of specific institutions and trusts
Chapter XIIF Denotes special tax rules for income from venture capital funds and venture capital companies
Chapter XIIFA  Describes special tax rules for business trusts
Chapter XIIFB Describes special tax rules for the income of investment fund schemes and the income received from it
Chapter XIIG Special tax rules for the income of shipping organisations.
Chapter XIIH Tax implications on fringe benefits
Chapter XIII Details of Income Tax Authorities
Chapter XIV Process of income tax assessment
Chapter XIVA Describes special rules for avoiding repeated appeals
Chapter XIVB Denotes special rules for assessing search cases
Chapter XV Tax liabilities in certain special cases
Chapter XVI Set out special tax rules applicable to firms
Chapter XVII Set out and defines the rules of tax collection and recovery
Chapter XVIII Set out the tax relief on dividend income in specific cases
Chapter XIX Describes the Tax Refunds
Chapter XIXA Denotes regulations related to Case settlements
Chapter XIX-AA Defines the Role of Dispute Resolution Committee in specific cases
Chapter XIXB Describes the Advance rulings
Chapter XX Describes the rules about Appeals and revision
Chapter XXA Describes the regulations about Immovable property acquisition in special cases of transfer to prevent tax evasion
Chapter XXB States the mode of accepting payments/repayments in special cases to counteract tax evasion
Chapter XXC Defines the rules regarding the purchase of immovable property by the central government in some transfer cases
Chapter XXI States the imposable penalties
Chapter XXI Defines the punishable offences and prosecutions
Chapter XXIB States the certificates of tax credit
Chapter XXIII Includes all the miscellaneous
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