Introduction to Income Tax

Introduction to Income Tax

The income tax Act, 1961, legalizes the imposition of income tax in INDIA. This act came into force on the first day of April 1962. The Act has approximately 298 sections and 12 schedules. These change every year with additions and deletions by the Finance Act passed by parliament. In Addition to the Income tax act, a number of rules were legislated to facilitate the administration of legal laws. Various legal instruments are described in this article .

The Finance Act

Every year the Finance Minister of the Government of India Presents the budget to the parliament. Part A of the budget speech contains the proposed policies of the Government in fiscal areas. Part B of the budget speech contains the detailed tax proposals. In order to implement the above proposals the Finance Bill is introduced in the Parliament. Once the finance bill is approved by the parliament and gets the assent of the parliament it becomes the finance act.

Income-Tax Rules

The Central Board of Direct Taxes (CBDT) oversees the administration of direct taxes. Section 295 of the Income Tax empowers the Board to make rules governing the purpose of the Act.

Circulars and Notifications

Circulars are issued by the Board from time to time deal with certain specific problems and to clarify doubts regarding the scope and meaning of the provisions. These circulars are issued by for the guidance of the officers and / or assessees. However, they cannot override judicial decisions passed on the legal enactment.

Rates of Tax

Income tax is to be charged at the rates fixed for the year by the annual finance act. Now take-up any finance act, let it be finance act 2019. We will find schedules at the end of the Finance Act. The first schedule consists of three parts. Part 1 consists of rates of tax applicable to income of various types of assesses for the assessment year 2019-2020. Part III of the finance act gives rates for deduction of tax at source in certain cases. Part III gives rates for calculating income tax for the purpose of deduction of tax from salary and also for computing advance tax. Obviously these rates are applicable for assessment year 2001-02. When Finance Act, 2020 is passed by the parliament, Part III of the first schedule to the Finance Act, 2019 will become Part 1 of the Finance Act, 2020. The new proposals regarding rates will be contained in Part III of the above Finance Act and they will apply for computing advance tax and deduction of tax from salaries for the assessment year 2019-2020 and so on.

Finance Act

Part III of the above finance act gives the rates for calculating or charging income tax in certain cases, deducting income tax from income chargeable under the head “salaries”and computing “advance tax”. In other words such rates are applicable for assessment year 2019-2020.

Definitions

Section 2 of the Income tax Act, 1961, defines various terms and concepts. These are used throughout the Income tax Act. These definitions are to be understood thoroughly. The definition of income tax act, 1961 are divided into two groups.

a). Exhaustive
b). Inclusive
Exhaustive definition: It gives a very clear and precise meaning of the given term. The meaning of the term does not go beyond what is expressly given in the definition. The term is clearly defined in the income tax act itself. Example : “Assessment Year”
Inclusive Definition: The definition may have some meaning in addition to its dictionary or the common meaning. It includes several meanings of the term.
Example: “Ïncome”. This word has its common meaning in dictionary. In addition to that there are many items included to this concept “income”

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