Income Tax Act of 1961 (Complete Detail)
The income tax act of 1961 was brought in effect from the 1st of April 1962. This act consolidates and amends the laws related to income tax and super tax. The tax system under this act is classified into 23 chapters. Each chapter has rules and laws described under different sections for different types of income tax purposes.
In this article we will cover What is Income Tax Act of 1961 in detail.
The income tax act was introduced by the British finance minister James Wilson in 1860. After that, many other acts were introduced in the constitution, but this act became the ground for all of the acts which came after. The income tax act of 1961 is the basic foundation of the income tax system of Independent India.
At present, there are 23 chapters, 298 sections and 14 schedules described in the income tax act of 1961. The act has been renewed from time to time by making amendments in the existing laws. More sections have been added to make the act relevant to present income scenarios.
From 1962 to 2023, this act has seen a lot of changes.
How many sections are there in Income Tax Act 1961?
There are 298 sections in the Income Tax Act 1961. The income tax Act is divided into 23 chapters. Each chapter describes the provisions of tax collection for a particular topic. The provisions for those topics are under these chapters and are described in sections. Thus, the 23 chapters of the income tax act have 298 sections in total.
A few most commonly used sections of the income tax act are discussed below.
Which is the most important section of Income Tax Act 1961
Out of 298 sections present in the income tax act of 1961, here are a few most commonly used by the common man. These sections have been selected as important on the basis of their heads of income they cover. Given below are a list of 12 topics covering the most used sections.
|1||Status||9- income deemed to accrue or arise|
|2||Salary||15- charging section|
7-income deemed to be received
17(1),17(2),17(3)- definition of salary, perquisites, profits in lieu of salary
|3||House Property||22- Charging section|
24-Deductions under house property
|4||PGBP||28- Charging section|
35- Scientific research expenditure
35-D- Preliminary expenses
35E- Prospecting of minerals
80GGA- deduction of non-businessmen for donation
80GGB and 80GGC- deduction for donation
Section 40(a)-expenses not deductible
40A(2)- payment to specified persons
40A(3)- payment in cash
43B- Deduction on payment basis
|5||Capital Gains||45(1)- charging section|
47-Transaction not regarded as transfer
111A-STCG on listed equity shares
45(1A)- insurance claim on destruction
45(2)- conversion on capital asset
|6||Other sources||EXEMPTIONS UNDER SECTION 54|
|56(2)- SPECIFIED INCOME|
10(15)- Interest exempt from tax
|7||Clubbing||64(1)(iv)-Assets of the spouse|
64(1A)- income of minor child
64(i)(ii)-remuneration of spouse
|8||Deductions||Sections 80C- Specific deductions|
80CCC- investment in pension fund
80CCD- contribution to pension scheme of CG
80D- Medical insurance premium
80DD- treatment of dependent disabled person
80U- treatment of handicapped person
80DDB- expenditure on specified disease treatment
80E- interest on education loan
80G- deductions on donation
80GG- deduction for payment of rent
80IA- development of infrastructure
80IB- development of SEZ corporate offices
88E- rebate of STT
|9||Assessment procedure||Section 139(1)- return of income|
139(3)-return of loss
139(4)- delayed return
139(4A,B,C,D)- Return of charitable trust, political parties, exempted entities, various institutions
139(5 revised income
139B- Tax Return Preparer
139C- Dispensation from furnishing documents
Other sections include:
140 Signing of Return, 140A for Self Assessment, 142(1) for Notice to file return and accounts, 142(2A) to 142(2D) for Special Audit, 143(1) for Summary Assessment, 143(2) & (3) for Scrutiny Assessment, 144 for Best Judgement assessment, 147 for Income escaping assessment, 149(1) for Time limit for issue of notice and 153 for Time limit for Completion of assessment
|10||Appeal||Section 154- Rectification of mistake|
250- Procedure in hearing appeal
263- Revision of orders prejudicial to revenue
264- Revision of orders prejudicial to assessee
|11||Advance Tax||234B Interest for non-payment|
234C Interest for deferment of tax
|12||Service tax||64- Extent Commencement and application|
Rule 4 Registration
Rule 6 Procedure of payment of service tax
68 Who shall pay the service tax
70 Furnishing of returns
Rule 7C Penalty for delay in furnishing return
Rule 7B Revised return
66 Charge of Service tax
67 Valuation of services
Which income is exempt in Income Tax Act 1961?
Section 10 of the income tax act describes the provisions for tax-free income. These income includes earnings in any form the sources mentioned below.
- Income from Agriculture produces,
- Income of the HUF,
- Exemptions on profit share from firms/LLP,
- Income in form of interests from bonds and securities by a NRI,
- Tax exemptions on leave travel in India given by the employer,
- Any income received by Diplomats and their sub-staff working on foreign soil,
- Any fees or royalties received from foreign companies in exchange of technical service,
- Any allowance paid to the employee of government of India working on a foreign soil,
- Any money received by a government employee after declaring VRS,
- Any amount received by the individual after maturation of LIC,
- Gratuity is tax free,
- Pensions are also exempted from tax,
- Any amount received after encashment of leave by a government employee after retirement,
- Retrenchment compensation received by employee is tax free up to a limit,
- Any income from PF or investment in sukanya samriddhi yojana is tax free,
- Any amount received as a award, prize or scholarship is fully tax free,
- HRA is tax free based on the tier of city the individual lives in,
- Any amount received as allowance to cover on job expenses are tax free up to a limit
What are the features of Indian Income Tax Act 1961?
The features of the income tax act 1961 can be classified on the basis of the role it plays in forming a revenue generating system for India.
1. The income tax act is applicable throughout India.
All of the states follow the same tax system which is proposed in the act. The state governments follow the same taxation laws to collect taxes as the central government. The share of revenue distribution is decided between the state and central government during the budget allocation.
2. Collection of tax in an organised manner.
The income tax act of 1961 has all the guidelines in place and covers all forms of income. The act has provisions for both salaried individuals, businesses, firms, freelancers, senior citizens, corporations, etc. The tax is collected in the form of direct and indirect taxes at the end of the financial year and throughout the year as well.
3. Revenue generation.
The income tax act helps to generate revenue for the public services, infrastructural development, providing subsidies, concessions, disaster aids to people in need, and more.
4. Taxation to control price
The individual, businesses, firms, LLPs, etc earnings are taxed as per the tax slab given the income tax act of 1961. This helps the government to control the purchasing power of the citizens. Like in the new budget, the weaker sections of the economy were given tax exemption up to the income of 7 lakhs. While, the middle class and higher middle class were kept out of big relief to gain more taxes.
5. Taxation to control the market fluctuations
Every year, the Finance minister makes some amendments to give a push to the economy.These amendments are for giving tax relief when the economy is not doing well the taxes are reduced. Similarly, when the economy is doing well more taxes are imposed.
6. Economic Development
The income tax act of 1961 has provisions supporting economic development by giving subsidies under schemes, tax exemptions to corporations for building plants in rural areas, tax saving schemes to encourage the people to deposit more money in the banks, encouraging the earning class to file ITR, digitalization of the tax system, etc.
FAQs : Income Tax Act of 1961
1. What is under Income Tax Act 1961?
The income tax act of 1961 has 23 chapters, 298 sections and 14 schedules describing various rules and provisions for tax calculation, collection, penalty, recovery and revenue generation.
2. What is Income Tax Act, 1961 in brief?
The income tax act 1961 has been part of the Indian constitution from 1860. It was first introduced by James Wilson in the British rule of India. The act was updated in 1961 and science then forms the foundation of the Indian tax system. The income tax act has 23 chapters, 298 sections and 14 schedules. It covers all of the aspects of the tax collection process from describing tax slabs for all income groups, who is liable to pay taxes, who is not!, tax deductions, exemptions, penalties, returns, refunds, advance taxes, etc.
The income tax act 1961 came into effect from 1st April 1962. There have been changes made by introducing new sections or by omitting old irrelevant sections from the act. As a result the income tax act 1961 is still relevant to the present dynamics of the economy. The purpose of introducing this act was to develop a synchronised system for income tax collection. A well formed system generates revenue for the economic development of the country.
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