Income Tax Act: An Overview

In 1886, a distinct Income Tax Act was established, and it was subject to various amendments over the years that it was in effect. In 1918, a new income tax statute was passed, but it was swiftly overturned. By a new act passed in 1922. A number of changes made to the Act of 1922 made it quite challenging. For the monetary year 1961–1962, this law is still in force. In 1956, the Indian government requested assistance from the Law Commission to clarify the law and thwart tax fraud. The Law Commission will assist the government in clarifying the law and combating tax fraud.

Currently, the Income Tax Act of 1961 (IT Act) governs India. On April 1, 1962, the present Income Tax Act became operative after being passed in 1961. The government referred the Income Tax Act to the Law Commission in 1956, and the report was delivered in 1958. The Direct Tax Administration Enquiry Commission's Chairman, Shri Mahavir Tyagi, was chosen in 1958. Based on the recommendations of both of these bodies, the current Income Tax Act was developed. The 1961 Act has undergone numerous revisions since then.

What is the Income Tax Act, 1961?

Everything relating to taxes is stated under the 1961-enacted Income Tax Act, which is a statute. Levy, collection, administration, and recovery of income tax are all included in this. The primary goals of the acts are to harmonize and update the nation's tax laws.

Features of the Income Tax Act

• The rate of income tax set forth in the Finance Act for the current assessing year is applied to the income from the prior year.

• Only when total revenue in the financial year surpasses the threshold tax-free amount defined by the Finance Act for that particular year does income tax liability arise.

• Because income tax rates are progressive, the cost of paying taxes rises as income does.

• Taxes must be withheld at the source and deposited in the government's coffers.

• A person is subject to income tax based on their earnings from the prior year.

• Based on the taxpayer's residency status in the previous year, his obligation is determined.

Purpose of the Income Tax Act

• To promote the acquisition of new capital goods.

• To focus investment on sectors that will contribute most to economic growth.

• To reduce excessive wealth, income, and consumerism disparities through sporadic production increases, offence, justice, and stability and peace.

• To protect against long-term inflationary pressures, short-term international price swings, and suitable economic stability.

• To accelerate the nation's economic development and growth.

Elements of the Indian Income Tax Act of 1961

It includes −

• The Income Tax Act, 1961 − The Act contains the majority of India's income tax rules.

• Income Tax Regulations, 1962 − The body in charge of administering direct taxes is called the Central Board of Direct Taxes (CBDT). To carry out the goals of this Act, the CBDT has the power to establish regulations.

• Finance Act − The budget is presented to Parliament by the Finance Minister. The finance bill becomes an act once it has been approved by the Indian Parliament and is ratified by the President.

Types of Income Tax

Major types are −

Direct taxation

Direct taxes are those levied right away on a person's income. Direct taxes are levied on both people and businesses. Future generations cannot be subjected to these taxes. Income tax is the most significant type of direct tax. The assessment year for this tax runs from April 1 to March 31 of each year. If your annual income exceeds the minimal exemption threshold, you are required to pay income tax according to the Income Tax Act of 1961. Tax breaks are provided under various sections of the Act. It's important that you understand the income tax bracket before we talk.

Direct taxes account for more than half of all governmental income in India. However, income tax is not the only type of direct tax. Income tax, capital gains tax, and service tax are the three types of direct taxes that are levied. All income received by individuals and HUFs is subject to income tax, with the exception of capital gains and income from businesses and professions. Income tax is computed using the applicable slab rates for the assessment year. The national government makes the slab rates public in the annual budget.

Indirect taxation

The taxes that are collected on your behalf and paid to the Indian government are known as indirect taxes. E-commerce companies, theatres, and any other business where you must pay taxes are examples of businesses that are subject to indirect taxes. The taxes that are imposed on products and services are known as “indirect taxes.” They are different from direct taxes in that they are levied on goods rather than on people who pay the Indian government directly.

Income Tax Liability

Major liabilities are −

• Self-employed people.

• People who work for a living.

• The Hindu Undivided Family.

• People in general, people's organizations.

• Businesses or corporate entities.

• The regional authorities.

Applicability

It includes −

• The foundation is for collecting money.

• Income that is exempt from paying taxes.

• Calculation of income across many categories.

• Categorization by income.

• Losses start out and continue moving forward.

• Discretionary deductions.

• Tax discounts and rebates.

• Taxation is decided in several unique situations.

• Domestic corporations must pay taxes on their dividends.

• Authorities on income tax and their authorities.

• Search, seizure, and surveillance.

• Techniques for evaluation.

• Tax recovery and collection, as well as source-based taxation (TDS).

• Tax payment in advance. 

• Appeals and revisions.

• Purchasing transportable property.

• Prosecution and punishment.

Remedies and Penalties under the Income Tax Act

The Income Tax Act's assessment methods do not include penalty proceedings. The procedure that the tax authorities must use in order to punish the assessee is laid out in Section 274 of the Income Tax Act. The method, in particular, considers the concepts of natural justice (i.e., due notice and hearing to be given to the assessee prior to impost). You may request a penalty reduction from senior tax officials under Section 273AA. The assessee may file a petition with the appellate authority to have an order imposing a penalty against them reversed. Contrarily, tax inspectors issuing “show-cause” letters are empowered to fine assess during the same processes under both goods and services tax and customs legislation.

Conclusion

Paying income tax to government is not a liability or burden, but rather it is duty of every citizen, as it is the integrity of democratic government. Therefore, every citizen has to pay income tax in order to advance their country. The common people should make an effort to understand the importance of income taxes as a way to contribute to the development of the nation. In order for our country to keep up with other industrialized nations and advance. Furthermore, every responsible citizen should regularly pay their income taxes on time. Our country's growth and social disintegration would suffer if people started to see paying income tax as a burden and chose not to. Moreover, not only paying income tax is imperative, but also paying on time is important.

Frequently Asked Questions

Q1. What distinguishes direct taxation from indirect taxation?

Ans. A tax that is paid directly to the institution that is imposing it by an individual or an organization is known as a "direct tax" (generally government). While indirect taxes can essentially be transferred to another company or person,

Q2. What is the Goods and Services Tax?

Ans. In India, there are two main state taxes. State Goods & Services Tax (SGST), Stamp Duty, and Registration are a few of them.

Q3. Describe income tax in more details.

Ans. The government imposes income taxes on individual revenues in order to fund public expenditures or outlays that are necessary to achieve the goal of social security. In relation to the prior year, the tax is assessed for the assessment year at the rates set by the Central Government in the Union Budget.