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

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:

Scope of Income Tax Act 1961

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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