Every taxpayer should understand the income tax structure and its basic terminolgies used in India. All the major tax regulations have been drafted under the Income Tax Act 1961, on the basis of which the Indian Income Tax Department levies taxes.

What is Income Tax Act 1961

The Income Tax Act, 1961 is the regulation that oversees the imposition, administration, collection, and recovery of taxes levied on income generated in India. In its 298 sections and 23 chapters, this income tax charging statute states various responsibilities and provisions of taxpayers. 

In 2010, the GOI sought to replace this Act with the “Direct Taxes Code”, which was eventually scrapped. However, since the time it came into force on 1st April 1962, the Government of India has made several amendments to this Act.

Provisions of Income Tax Act 1961

There are various provisions under the Income Tax Act 1961. Here are some of the crucial ones-

• Taxability of Income
• Annual information and financial transaction statement
• Assessing tax authorities
• Undertaking transactions mode
• Instructions to subordinate authorities
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Application of the Income Tax Act

The act is implemented throughout India via the following –

• Income Tax Rules, 1962

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To administer and enforce direct taxes in India, the Central Board of Direct Taxes (CBDT) has put forth a set of rules. These rules are stated in the Income Tax Rules, 1962.

• Finance Act 

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The Ministry of Finance presents a Finance Bill in Parliament every year, usually in the last week of February. This bill contains several amendments to the prevalent direct and indirect tax regulations in the country. 

Both Lok Sabha and Rajya Sabha may recommend amendments and changes to this bill before passing it. After it is passed in the Parliament, the bill will have to undertake the President’s assent, after which, it becomes the Finance Act.

• Judicial Announcements

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The Supreme Court holds the right to address contradictions and make decisions for the correct implementation of income tax rules and laws. Mandates by this court will be applicable throughout the country. 

• Government Notifications and Circulars

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Notifications and circulars issued by the government and CBDT clear confusion and provide more transparency to the taxpayers and authorities regarding an Income Tax Bare Act and amendments.