Income Tax Act 1961 – Basics that you need to know

By Ayush Chandra 12 Minutes Read

Introduction

The Income Tax Act (“the Act”) holds the questionable analysis of being the law that has observed the highest number of alterations being executed to it. It must reasonably be the world’s most amended enactment, it having been revised more than 3500 times in 35 years! This gives it a very difficult and unexpected law, following in thousands of man-hours of tax-payers and tax-gatherers being consumed every year to understand the law. We have attempted to clarify the basics of the Act here,

Assessment:

The Act presents a device for measuring the tax linking to the income of an assesses concerning an evaluation year. Such an estimate is performed after enabling numerous reductions, exceptions, and allowances to the assesses, and is termed an assessment. Assessment year is the year in which the income of the prior year is to be assessed to tax.

Got more doubtful? An example will explain the theme. The income of the Financial Year 2018-19 will be assessed to tax in the evaluation year 2019-20, that is to state, the charges of Assessment year 2019-20, will be applied to the income of the financial year 2018-19. Unexpectedly, Financial Year is related to as the Previous Year in the Act

Assesses is a person by whom any tax or any additional sum of payment is payable under the Act. The assesses could be any of the following:

1. An Individual
2. A Hindu Undivided Family (HUF), which is a kind of assesses identified under the Act, consisting of all forms lineally descended from a general ancestor and receiving income from a joint family corpus. Hindu, Jain , Buddhist, and Sikh groups have been so recognized.
3. A Company
4.  A Firm
5. An Association of Persons or a Body of Individuals
6. Artificial Juridical Person, e.g. a Hindu deity

Which means of Taxation Law?

It is a charge levied by the state on the individual and partnership. The component of impulse is percent in it. As per Prof, “A tax is a mandatory commitment from the prison to the state to consumption acquired on the exercises for the basic enthusiasm with no reference to unique advantage by any stretch of the imagination.” According to Justice Oliver Wendell Holmes, “tax is the thing that we pay for acculturated society.”

Sorts of Taxes:

• Direct Taxes: According to Prof. Shivas, “Direct taxes are those which are forced instantly on property and individual. The rate of tax and effect of it lie on one individual on whom tax is forced. Model Income Tax.
• Indirect Tax: Those tax on which rate of tax and effect of tax lies on various people. Example: Excise Duty, VAT.

“Direct tax is for rich and indirect tax is for poor people.”  Prof. Adam Smith:- He gives the accompanying standards of Taxation Law: [1]

• Cannon of Equity is otherwise called the rule of capacity to pay.
• Cannon of Certainty implies who so even pay tax must know the sum he needs to cover as tax with the goal that he can assess the sum as a investment, so to make assured about his life.
• Cannon of Convenience implies tax ought to be less troubled and helpful to pay.
• Cannon of Economy, regulatory costs ought to be less.

The historical framework of Income Tax Act-1961:[2]

In India, for the first time, Income Tax started in 1860 by Income Wilson.

• 1858: English Government has economic damage due to the 1857 revolution.
• 1860: In 1860 the limit of tax was Rs.200.
• 1862: In 1862 this limit was increased to Rs.60.
• 1886: In 1886 a new bill was proposed which subsisted till 1917.
• 1916: In 1916 there was an Improvement that happened in the act of 1886 and the increasing rate of tax proposes.
• 1918-1922: In 1918-1922 new act was founded. There was a disadvantage in this act. Not capable to discover the current assets in the current year.
• 1924: In 1924 a new act came and many alterations were done in that.
• 1956: In 1956 this matter was presented to the Law Commission then Direct Tax Administration. After that, this object was given to Enquiry Committee so that to abolish the complexities of tax difficulty and in 1957 they presented their article so the advice is obtained and in 1961, September as New Income Tax was included.

Income Tax Act 1961 – Basics that you need to know

Tax is the obligatory monetary charge by the government on pay, product, management, exercises or exchange. Taxes are the primary methods of revenue for the government, which are used for the benefit of the general people of the nation through government policies, systems, and applications. There are books for taxes in classical writings like Manusmurti and Kautilya Arthashastra. It was launched in India in 1860 for the first time to overcome the financial crisis of 1857. Accordingly, it is the income tax Act 1961 which is at already effective in India.

Need for Income Tax in India

Income tax is a tax on the earnings of an individual or an entity. Income tax is the foremost source of revenue for the government to carry out its duties. The jobs of government are not just limited to security, law, and order, etc., but it also has to offer projects like welfare and construction under sectors of health, education, rural development, etc. the management also has to pay for its government. All of these projects need large public investment which is established by the combination of taxes.

Important Terms and Definitions under The Income Tax Act, 1961

• Assessment year and previous year

As per Section 2(9) of the Income Tax Act, 1961[3], asserts that assessment year indicates the 12-month term starting on the 1st day of April every year. The assesses is expected to file the income tax return of the previous year in the assessment year. As per S.2 (34) of Income Tax Act, 1961[4], except the meaning otherwise requires, the expression “previous year” indicates the prior year as defined in section 3[5].

As per Section.3 of Income Tax Act, 1961, the phrase “previous year” means the financial year directly introducing the assessment year. Say, for illustration, the year starting from 1st April 2018 and finishing on 31st March 2019 is the assessment year 2018-19, the previous year would be 2017-18. The standards of assessment year are taken into concern.

Who is a character under income tax?

A person is determined under section 2(31) [6]of the act. The expression ‘person’ includes –

1. An individual.
2. A Hindu Undivided Family.
3. A Company.
4. A Firm.
5. An organization of persons or body of individuals whether corporate or not;
6. A local administration;
7. every artificial juridical person

A brief overview of the Wealth Tax Act

The Wealth Tax Act is significant direct tax legislation. Given here is a short summary of the terms of the Wealth Tax Act (“the Act”). Assesses means a body by whom the wealth tax or any other sum of money is obligatory under the requirements of the Act, and holds the legal legislator, administrator, or director of a deceased person and a person considered to be an agent of a non-resident. Under the Act tax is imposed on the following persons concerning the wealth contained by them during the assessment year:

1. Individual;
2. Hindu Undivided Family;
3.  Company

Chargeability to tax also depends upon the domestic status of the assessee. The Act presents that the domestic status for the Act shall be equal as the domestic status for the meaning of the Income Tax Act. The changeability also depends upon the Citizenship of a character. To be a resident of India, a body must have a domicile in the boundaries of India and must satisfy any of the following conditions:

1. He must have been born in India.
2. Either of his parents must have been born in India;
3. Before the establishment of Republic i.e. 26th January 1950, he has been usually resident in India, for 5 years.

[1] https://www.libertarianism.org/columns/adam-smith-public-policy-four-maxims-taxation
[2] Source link.
[3] “assessment year” means the period of twelve months commencing on the 1st day of April every year ;
[4] ) “previous year” means the previous year as defined in section 3
[5] For the purposes of this Act, “previous year” means the financial year immediately preceding the assessment year :Provided that, in the case of a business or profession newly set up, or a source of income newly coming into existence, in the said financial year, the previous year shall be the period beginning with the date of setting up of the business or profession or, as the case may be, the date on which the source of income newly comes into existence and ending with the said financial year.]
[6] ) “person”65 includes— (i) an individual65, (ii) a Hindu undivided family65, (iii) a company, (iv) a firm66, (v) an association of persons66 or a body of individuals66, whether incorporated or not, (vi) a local authority, and (vii) every artificial juridical person, not falling within any of the preceding sub-clauses

Ayush Chandra