Income tax in law India: Key facts

Taxes are monetary fees that the government levies on income, goods, services, activities, or transactions. Taxes, the government’s primary funding source, are utilised to advance national laws, legislation, and practises that benefit the populace.

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The Indian tax structure has changed to accommodate the government’s expanding financial needs. The system is also intended to aid the government’s achievement of its socioeconomic objectives. Tax reform is a continuous process that has to be done regularly to inspect the system for updating and maintenance.

India is now governed by the Income Tax Act of 1961 (IT Act). The current Income Tax Act was passed in 1961 and went into effect on April 1st, 1962. The government referred the Income Tax Act to the Law Commission in 1956, and the report was delivered in 1958. The Direct Tax Administration Enquiry Commission’s Chairman, Shri Mahavir Tyagi, was chosen in 1958. Based on the recommendations of both of these bodies, the present Income Tax Act was developed. The 1961 Act has undergone several revisions since then.

1961 Income Tax Act: Summary

To compensate for the harm caused by the military uprising in 1857, Sir James Wilson introduced an income tax in India in 1860. In 1886, a unique Income Tax Act was established, and it was subject to many amendments during the years that it was in existence. In 1918, a new Income Tax Statute was passed, but it was swiftly overturned by a new act passed in 1922. Several changes made to the Act of 1922 made it quite challenging. This law is still in force for the financial year 1961–1962. In 1956, the Indian government asked the Legislation Commission to clarify the law.

Together with the Ministry of Law, the Law Commission presented its conclusions in September 1958. Act of 1961, commonly known as the Income Tax Act of 1961, which went into force on April 1st, 1962, presently governs this law. All of India, including the state of Jammu & Kashmir, must follow it.

Any legislation is inadequate in and of itself unless the gaps are filled. India’s income tax laws are governed by the Income Tax Act of 1961 and several income tax regulations, notices, circulars, and court rulings, including tribunal decisions.

1961 Income Tax Act: Income tax types

Marginal, moderate, or proportional-income taxes are all possible. India has two different forms of income tax:

Direct taxes

Direct taxes are those levied right away on a person’s income. Direct taxes are levied on both people and businesses. Future generations cannot be subjected to these levies. For individual taxpayers, the income tax is the most significant type of direct tax.

Throughout the assessment year, this tax is collected once a year (April 1st to March 31st). If your annual income exceeds the minimum exemption threshold, you are required to pay income tax, according to the Income Tax Act of 1961. Tax reductions are provided under several sections of the act.

Indirect taxes

Indirect taxes, on the other hand, are those that the Indian government receives and pays on your behalf. E-commerce companies, theatres, and any other businesses where you must pay taxes are examples of businesses that are subject to indirect taxes. The taxes that are imposed on products and services are known as indirect taxes.

They differ from direct taxes in that they are levied on goods rather than people who pay the Indian government directly. They are collected by a middleman, the person who is selling the product. Examples of small indirect taxes include sales taxes, taxes imposed on imported goods, value-added tax (VAT), and others.

1961 Income Tax Act: Need

Taxes are the government’s main source of revenue. Tax money is used to pay for public services like education, infrastructure improvements like roads and dams, and other things. The primary goal of collecting taxes is to provide the government with an appropriate level of revenue.

Taxes are now viewed as a tool for achieving the social and economic aims of a welfare state. The Income Tax Act of 1961 was thus required.

1961 Income Tax Act: Goals

The objectives of the Income Tax Act are as follows:

To reduce income and wealth distribution inequalities.
To achieve the dual objectives of improved yields.
To accelerate the nation’s economic development and progress.
To provide proper economic stability and security against both short and long-term volatility in international prices.
To provide money for economic growth.
To reduce excessive wealth, income, and consumption disparities through increasing production over an extended period of time and promoting offence, justice, peace, and stability.
To promote the acquisition of new capital goods.
To focus investment on the sectors that contribute most to economic growth.

1961 Income Tax Act: Characteristics

Income tax is the sum due when the government levies taxes on the direct income of its citizens within its jurisdiction. India’s income tax system is incredibly complicated and has many other obstacles, challenges, and features. Even if the entire process could seem difficult, the country’s citizens may be affected by a successful resolution of the issue. The government uses income tax as a tool to ensure that community initiatives and official jobs are completed correctly and on schedule.

The following are the act’s main characteristics:

The Finance Act’s rate for the current assessment year’s income tax is applied to the income from the previous year.
A person is subject to income tax depending on the income from the prior year.
Based on the taxpayer’s residency status in the previous year, the amount of his duty is determined.
Only when total revenue for the fiscal year surpasses the threshold tax-free amount determined by the Finance Act for that particular year does income tax liability arise.
The tax burden rises with income since income tax rates are progressive.
Taxes must be withheld at the source and deposited in the government’s coffers.

1961 Income Tax Act: Remedies and penalties

The government will always have money available for public welfare if taxes are paid on time and reports are filed. The act includes several penalties to ensure taxpayers take advantage of filing their taxes or providing information. A penalty is a sanction imposed on taxpayers who have broken the law. As part of the taxation systems, Indian tax authorities have been granted the right to punish taxpayers for breaches ranging from non-filing returns to non-disclosure of income or non-payment of tax.

While penalties for procedural violations are sometimes expressed in direct numbers, those for failing to pay taxes or report income or transactions are typically assessed as percentages of the taxes owed or amounts involved (generally 100 to 300 per cent).

The Income-tax Act lists particular penalties for taxpayers who commit crimes, including wilful tax evasion, failing to pay already collected indirect taxes, and other similar offences. Such offences are subject to both a fine and a jail sentence. The tax cheat is then put on trial in accordance with the Criminal Procedure Code’s guidelines. As a result, taxpayers may take advantage of the Code’s legal options.

FAQs

What is the Income Tax Act of 1961?

The Income Tax Act, 1961, is legislation enacted by the Government of India that lays down the laws and rules for the imposition, assessment, and collection of income tax in the country.

Who is liable to pay income tax in India?

Any individual, member of the Hindu Undivided Family, company, firm, association of persons, or body of individuals whose total income exceeds the minimum amount not chargeable to tax during a financial year is liable to pay income tax in India.

How can I file my income tax return?

Income tax returns can be filed online through the e-filing portal of the Income Tax Department. Alternatively, returns can also be filed offline by submitting a paper return to the designated Assessing Officer.

What is the deadline for filing income tax returns?

The deadline for filing income tax returns is usually July 31st of the assessment year. However, this date may be extended by the government in certain cases.

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