Taxation

Income Tax

Income tax in India is imposed by the government of India. Indian Taxation System is rooted in the era of Manu Smriti and Arthashast. At present taxation in India based on the ancient tax system. This was based on the theory of the maximum welfare of the society.

Everyone who is earning in India has to pay income tax. The income could be pension, salary, business income, professional income, capital gain, or could be earning from saving account. Keeping this in mind, we are presenting a comprehensive guide to Income Tax in India.

Income Tax is a tax that you pay directly to government on the basis of your income or profit. Income tax is collected by the government of India. Two types of taxes direct tax and indirect tax.

Direct tax is the tax that you paid directly to the government and is levied on profit and income. However indirect tax is the tax that levied on goods and services and is collected by someone else on your behalf and is paid to the government like theatres, restaurant, etc. For example, goods and services tax is what you have paid in a restaurant and is an indirect tax, whereas income tax that is deducted from your salary every month in the form of TDS, is an example of direct tax.

The money collected by the direct tax rout is used by the government for infrastructure developments and also to pay the employees of central and state government bodies.

Income Tax Act of India was passed in 1961. This Act governs the provision for income tax as well as the various deductions that are applicable to it. However since 1961, the law has been amended several time to take care of inflation and other socio-economic situation.

Income Tax Overview

Income Tax is undoubtedly the most important source of revenue for the Indian government. It is established as an inevitable imposition on the citizen in order to raise funds for fulfilling the development & defense needs of the country.
Taxes imposed on income, purchase, sale and property help the government to run different government embodiment and machinery.

In India the fist Income Tax Act was introduced in 1860. It was implied by James Wilson to overcome heavy losses suffered by the British Government due to India’s freedom movement in 1857. The history of Income Tax in India is divided into 3 different periods:

  1. 1860-1885
  2. 1886-1914
  3. 1914 to till date

Currently, the Income Tax Act 1961 is applicable in India. In 1956 the government referred the request to impose Income Tax Act. The Law Commission further submitted its report on the Income tax Act in 1958 and the same year, Chairman Shri Mahavir Tyagi, chaired the Direct Taxes Administration inquiry Commission.

The Income Tax Act 1961 was introduced to the public, Since then it has undergone amendments from time to time.

Income Tax Rules

The legislation introduced the Income Tax Act 1961, to govern and administer income tax in the country. However in the year1962, the income tax rule were created in order to help in the enforcement and application of the law constituted in the Act. Moreover, one can only read the income tax rule in combination with the Income Tax Act. The Income Tax Rules are made within the structure of the Income Tax Act and is not allowed to overrule its provision.

Who are The Tax Payers?

Any Indian citizen aged below 60 years is liable to pay income tax, if their income exceeds Rs.2.5 Lakhs. If the individual is above 60years of age and more that 2.5 Lakhs, he/she will have to pay taxes to the Government of India.

Additionally, the following entities that generate income are liable to pay direct taxes:

  • Hindu Undivided family
  • Body of Individual (BOI)
  • Association of Person (AOP)
  • Local Authorities
  • Corporate Firms
  • Companies
  • All Artificial Juridical Person