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

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

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:

Chapter	Overview
Chapter I	Covers an  overview of the IT Act
Chapter II	Covers the scope of the IT Act
Chapter III	Covers income that doesn’t form the total income’s part
Chapter IV	Covers the process of calculating total income
Chapter V	Covers other income sources like properties, capital gains, etc.
Chapter VI	Covers aggregate income and losses that are carried forward and set off.
Chapter VIA	Covers exemptions applicable at the time of calculating total income
Chapter VIB	Covers limitations/exceptions on certain deductions offered to companies
Chapter VII	Covers some parts of total income that don’t come under the purview of income tax
Chapter VIII	Covers rebates and reliefs as applicable at the time of calculating tax on your income
Chapter IX	Covers double taxation relief information
Chapter X	Covers special cases where assessees are exempted from paying tax on income
Chapter XA	Covers rules of anti-avoidance about income tax
Chapter XI	Covers added tax implications on profits that are not distributed
Chapter XII	Covers tax calculation rules in some special cases
Chapter XIIA	Covers Non-Resident Indian (NRI) income special rules
Chapter XIIB	Covers the special provisions on tax enjoyed by some companies
Chapter XIIBA	Covers special provisions on tax enjoyed by some limited liability partnerships
Chapter XIIBB	Covers special rules on tax for a foreign bank’s Indian branch that converts to a subsidiary company
Chapter XIIBC	Covers special rules on tax for firms that are resident in India
Chapter XIIC	Covers special rules on income tax for retail trade
Chapter XIID	Covers special rules on income tax for domestic companies’ distributed profits
Chapter XIIDA	Covers special rules on income tax about domestic companies’ distributed income for buying back shares
Chapter XIIE	Covers special rules on income tax rules for distributed income
Chapter XIIEA	Covers special rules on income tax for securitization trusts’ distributed income
Chapter XIIEB	Covers special income tax rules of specific institutions and trusts for accredited income
Chapter XIIF	Covers special income tax rules for income received from venture capital companies and funds
Chapter XIIFA	Covers special tax rules for business trusts
Chapter XIIFB	Covers special tax rules for the income earned by investment fund schemes and the income received from them
Chapter XIIG	Covers special tax rules for the income of shipping organizations
Chapter XIIH	Covers tax implications on fringe benefits
Chapter XIII	Covers information on Income Tax Authorities
Chapter XIV	Covers income tax assessment procedure
Chapter XIVA	Covers special rules for avoiding repeated appeals
Chapter XIVB	Covers special rules for assessing search cases
Chapter XV	Covers special cases of tax liabilities
Chapter XVI	Covers special income tax rules that apply to firms
Chapter XVII	Covers tax collection rules and recovery
Chapter XVIII	Covers tax relief in specific cases on dividend income
Chapter XIX	Covers tax refunds
Chapter XIXA	Covers case settlements
Chapter XIXAA	Covers the role of the Dispute Resolution Committee in some specific cases
Chapter XIXB	Covers advance rulings
Chapter XX	Covers appeals and revision
Chapter XXA	Covers special cases of transfer of immovable property acquisition to prevent tax evasion
Chapter XXB	Covers how to counteract tax evasion for modes of accepting payments or repayments in some special cases
Chapter XXC	Covers some cases of transfer of purchasing immovable property by the central government
Chapter XXI	Covers imposable penalties
Chapter XXIA	Covers punishable offenses and prosecutions
Chapter XXIB	Covers income tax credit certificates
Chapter XXIII	Covers miscellaneous things

 

Scope of Income Tax Act 1961

Income Type	Resident and Ordinarily Resident (ROR)	Resident but not-Ordinarily Resident (RNOR)	Non-Resident (NR)
Income received in India or estimated to be received in the country	Taxable	Taxable	Taxable
Income accumulated in India	Taxable	Taxable	Taxable
Income is accumulated from outside India. However, the employment/business is within India	Taxable	Taxable	Non-taxable
Income is accumulated from outside India, and the employment/business is also outside India	Taxable	Non-taxable	Non-taxable
Untaxed foreign income from the past brought into India	Non-taxable	Non-taxable	Non-taxable

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