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.
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.
There are various provisions under the Income Tax Act 1961. Here are some of the crucial ones-
The act is implemented throughout India via the following –
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.
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.
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.
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.
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 |
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 |