AccounTax

The Income Tax Act, 1961, is the primary legislation in India that governs the taxation of income for individuals, businesses, and other entities. It was enacted by the Parliament and came into force on April 1, 1962.

Key Features of the Income Tax Act

1. Scope: It applies to the income earned by individuals, Hindu Undivided Families (HUFs), firms, companies, and other entities.
2. Residential Status: Tax liability depends on whether a person is a resident or non-resident of India.
3. Heads of Income: Income is categorized into five heads:
   • Income from Salary
   • Income from House Property
   • Profits and Gains of Business or Profession
   • Capital Gains
   • Income from Other Sources
4. Tax Slabs & Rates: Taxpayers are taxed based on slabs, with separate rates for individuals, senior citizens, and companies. The New Tax Regime (introduced in Budget 2020) offers lower tax rates but with fewer deductions.
5. Deductions & Exemptions: Various deductions (under Sections 80C to 80U) and exemptions (like HRA, LTA) help in reducing taxable income.
6. TDS & Advance Tax:
   • Tax Deducted at Source (TDS) ensures tax collection at the point of income generation.
   • Advance Tax requires taxpayers to pay tax in installments during the financial year if the tax liability exceeds ₹10,000.
7. Filing of Income Tax Returns (ITR): Taxpayers must file ITRs annually, with different forms based on income sources.
8. Penalties & Prosecution: Non-compliance, tax evasion, or delays in filing may result in penalties or legal action.

Recent Amendments

• Faceless Assessment & Appeals: To improve transparency and reduce human intervention.
• New Tax Regime (Optional): Lower tax rates with no major exemptions.
• GST & Digital Taxation: Impact on indirect taxation and online transactions.

The Income Tax Act, 1961, plays a crucial role in India’s financial system by ensuring revenue collection for development and governance while providing benefits to taxpayers through deductions and exemptions.