The Income Tax Act 1961 – Features, Objectives, and Provisions of Income Tax Act 1961

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Updated on Jan 27, 2024

The thought of filing taxes, especially for first-time taxpayers, may bring about a lot of confusion. However, paying income tax is financially and legally binding on every Indian who comes under the taxable income slab. Hence, knowing and understanding the basics of income tax and how it is imposed is crucial. To comprehend the essentials of income tax, you must first understand some significant aspects of the Income Tax Act 1961, based on which the income tax department in India imposes tax on every entity. Let’s know about them in this post!

What is Income Tax?

The tax charged on the yearly income of a person or business in a fiscal year is called the Income Tax. The Income Tax imposed on individuals, businesses, and other entities is governed by the Income Tax (IT) Act of 1961, which is a tax system in India. The IT Act, with its prescribed rules and provisions, supports the income tax department of India to calculate and collect taxes from different entities.

Every year, taxpayers are compulsorily required to submit an ITR or Income Tax Return as per the due date set by the government to report their yearly income and to raise a tax refund claim as applicable. A taxpayer can file an ITR either online or offline. For online return filing, taxpayers can go to the official website of the Income Tax Department.

You may also note that the IT Act in India presents several exemptions that taxpayers can use to reduce their tax liability in a given FY.

What is the Income Tax Act 1961?

As mentioned above, the Income Tax Act of 1961 is a set of regulations that govern the tax imposed and collected by the IT department from taxpayers. The IT Act in India consists of numerous significant provisions, including 298 sections and 23 chapters. All these provisions depict the various aspects of taxation in India.

Direct and indirect taxes are two classifications of the Income Tax Act 1961 that are categorized as per the nature of the Act. The tax that every taxpayer pays on their income is the direct tax, which is paid by tax-paying entities as per their earnings in a year at a certain percentage. On the other hand, indirect taxes are imposed by the government on products and services indirectly.

What were the Objectives/Purposes of Introducing the Income Tax Act 1961?

Below are some key objectives of income tax:

  • The IT Act helps in price stability, limits private spending, and keeps a check on the inflation rate in India
  • It helps to lower product prices while enhancing demand. This way, it generates better opportunities for employment
  • Being a progressive tax system, the IT Act of India addresses wealth inequality among citizens
  • As per the economy of the country, the income tax rates are controlled to support the variations in the value of money
  • For the growth of Indian products and to beat the competition experienced by Indian product manufacturers, the IT Act levies import duty on foreign goods

Also Read: Seventh Proviso to Section 139(1) of Income Tax Act

Sections/Chapters of the Income Tax Act 1961

There are 23 chapters in total on the Income Tax Act 1961. These sections are further divided into subparts. Let’s take a look at the various income tax sections/chapters in the below table:

Chapter 

Overview

Chapter I  Covers an  overview of the IT Act
Chapter II Covers the scope of the IT Act
Chapter III Covers income that doesn’t form the total income’s part
Chapter IV Covers the process of calculating total income
Chapter V Covers other income sources like properties, capital gains, etc.
Chapter VI Covers aggregate income and losses that are carried forward and set off.
Chapter VIA Covers exemptions applicable at the time of calculating total income
Chapter VIB Covers limitations/exceptions on certain deductions offered to companies
Chapter VII Covers some parts of total income that don’t come under the purview of income tax
Chapter VIII Covers rebates and reliefs as applicable at the time of calculating tax on your income
Chapter IX Covers double taxation relief information
Chapter X Covers special cases where assessees are exempted from paying tax on income
Chapter XA Covers rules of anti-avoidance about income tax
Chapter XI Covers added tax implications on profits that are not distributed
Chapter XII Covers tax calculation rules in some special cases
Chapter XIIA Covers Non-Resident Indian (NRI) income special rules
Chapter XIIB Covers the special provisions on tax enjoyed by some companies
Chapter XIIBA Covers special provisions on tax enjoyed by some limited liability partnerships
Chapter XIIBB Covers special rules on tax for a foreign bank’s Indian branch that converts to a subsidiary company
Chapter XIIBC Covers special rules on tax for firms that are resident in India
Chapter XIIC Covers special rules on income tax for retail trade
Chapter XIID Covers special rules on income tax for domestic companies’ distributed profits
Chapter XIIDA Covers special rules on income tax about domestic companies’ distributed income for buying back shares
Chapter XIIE Covers special rules on income tax rules for distributed income
Chapter XIIEA Covers special rules on income tax for securitization trusts’ distributed income
Chapter XIIEB Covers special income tax rules of specific institutions and trusts for accredited income
Chapter XIIF Covers special income tax rules for income received from venture capital companies and funds
Chapter XIIFA Covers special tax rules for business trusts
Chapter XIIFB Covers special tax rules for the income earned by investment fund schemes and the income received from them
Chapter XIIG Covers special tax rules for the income of shipping organizations
Chapter XIIH Covers tax implications on fringe benefits
Chapter XIII Covers information on Income Tax Authorities
Chapter XIV Covers income tax assessment procedure
Chapter XIVA Covers special rules for avoiding repeated appeals
Chapter XIVB Covers special rules for assessing search cases
Chapter XV Covers special cases of tax liabilities
Chapter XVI Covers special income tax rules that apply to firms
Chapter XVII Covers tax collection rules and recovery
Chapter XVIII Covers tax relief in specific cases on dividend income
Chapter XIX Covers tax refunds
Chapter XIXA Covers case settlements
Chapter XIX-AA Covers the role of the Dispute Resolution Committee in some specific cases
Chapter XIXB Covers advance rulings
Chapter XX Covers appeals and revision
Chapter XXA Covers special cases of transfer of immovable property acquisition to prevent tax evasion
Chapter XXB Covers how to counteract tax evasion for modes of accepting payments or repayments in some special cases
Chapter XXC Covers some cases of transfer of purchasing immovable property by the central government
Chapter XXI Covers imposable penalties
Chapter XXIA Covers punishable offenses and prosecutions
Chapter XXIB Covers income tax credit certificates
Chapter XXIII Covers miscellaneous things

Scope of Income Tax Act 1961

Income Type Resident and Ordinarily Resident (ROR) Resident but not-Ordinarily Resident

(RNOR)

Non-Resident

(NR)

Income received in India or estimated to be received in the country Taxable Taxable Taxable
Income accumulated in India Taxable Taxable Taxable
Income is accumulated from outside India. However, the employment/business is within India Taxable Taxable Non-taxable
Income is accumulated from outside India, and the employment/business is also outside India Taxable Non-taxable Non-taxable
Untaxed foreign income from the past brought into India Non-taxable Non-taxable Non-taxable

Who Is Required to Pay Income Tax?

As per the IT Act of India, 1961, the term ‘Person’ is defined under section 2(31) and is categorized into 7 categories, such as;

  • As an Individual (e.g. Salaried employee, business owner, etc.)
  • HUF (Hindu Undivided Family)
  • Business/Company
  • A Firm
  • An Association of Persons (AOP)/Body of Individuals (BOI), etc.
  • A Local Authority
  • Every Artificial Judicial Person

What are the features of the IT Act 1961?

Below are some salient features of income tax:

  • Being a direct tax, income tax has to be paid by individual taxpayers only and cannot be transferred
  • Income tax is controlled by the Central Government of India
  • Income tax is levied on the previous year’s income of taxpayers that they have earned in the last financial year
  • Tax is calculated as per the income tax slab of taxpayers
  • The government imposes tax rates in a way that the economically powerful people have to pay it at higher rates
  • Income tax also allows deductions up to a certain limit based on a particular FY

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Final Word
Income tax has some complex provisions that many find difficult to understand. Without the proper knowledge, it is difficult to maintain compliance with the provisions. Hence, it is essential to have a basic understanding of the Income Tax Act 1961 to help you make wiser investment moves to save tax. Further, you may also seek professional support if you want to help you with tax-related queries.

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FAQs: What is the Income Tax Act 1961?

Who is credited with the introduction of the first IT Act in India?

In February 1860, Sir James Wilson, the first Finance Minister of British India, introduced the first IT Act in India.

How many sections does the IT Act of India have?

The IT Act of India has 298 sections and 23 chapters.

What are the key points of the IT Act 1961?

1. To promote price stability
2. Full employment
3. Economic development
4. Reduction of BOP difficulties
5. Controlling cyclical fluctuations
6. Non-revenue objectives

How to Calculate Income Tax?

To calculate income tax easily, you can take the help of an online Income Tax Calculator and submit details like:
1. Enter your details like name, email ID, DOB, and profession
2. Enter your income details from different sources of income
3. Enter any other income earned during the year
4. Now, submit the deductions under different sections of the IT Act
5. You will be able to see the tax to be paid.

Can I save taxes?

Yes, you can save taxes during a financial year via the various tax exemption options under the IT Act.

What is the income tax law?

Income tax laws are a set of income tax rules in India governed by The Income Tax Act of 1961.

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Jan 24, 2024
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