Income Tax Act, 1961: Income Tax

Income Tax Act

Income Tax occupies a dominant place in direct taxes and it is an important source of revenue for the government. The Income Tax Act, 1961 has been brought into force with effect from 1st April, 1961. It applies to the whole of India including Jammu and Kashmir. It also applies to Sikkim with effect from 1st April, 1990 assessment.

Income-tax is a direct tax. It is levied and collected by the Central Government. The government has set up a separate Income-Tax Department for this purpose. Income-Tax is a very important source of Income ofd the Central Government. Income-tax Department functions under the direct control and supervision of ‘Central Board of Direct Taxes’ (CBDT) which is under the finance ministry of the Government of India. Income-tax is a tax on income, levied on the previous year’s total taxable income of an assess at the rates applicable during the current year.

Basic Concepts of Income Tax

Definitions of some of the important terms used in the Income Tax Act, 1961 have been given as under:

1. Income [Section 2(24)]: The concept of income is very important as it is the income that is taxed under the Income-tax Act. The definition of income under this act is very wide and includes profits and gains, dividends, voluntary contributions, perquisites, allowances, discharge of an obligation, compensation receipts, profits on sale of license, cashs assistance received against exports, recovery of loss or expenditure, recovery of bad debts, any wins from lottery, crossword puzzles, races, card games, gambling, betting, etc.

2. Agricultural Income [Section 10(1)]: Section 10(1) exempts agricultural income from income tax. By virtue of Section 2(1A) the expression “agricultural Income” means:

  1. Any rent or revenue derived from land which is situated in India and is used for agricultural purposes [Section 2 (1A)(a)].
  2. Any income derived from such land by agricultural operations including processing of the agricultural procedure, raised or received as rent-in-kind so as to render it fit for the market or sale of such produce [Section 2(1A)(b)].
  3. Income attributed to a farm house subject to certain conditions [Section 2(1A) (c)].
  4. Any income derived from sapling or seedlings grown in a nursery shall be deemed to be agricultural income. [With effect from the year 2009-10].

Income Treated as Agricultural Income

  1. Income from sale of replanted trees.
  2. Rent received for agricultural land.
  3. Income from growing flowers and creepers.
  4. Shares of profit of a partner from a firm engaged in agricultural operations.
  5. Income derived from sale of seeds.

Income Not Treated as Agricultural Income

  1. Income from poultry farming.
  2. income from bee hiving.
  3. Income from dairy framing.
  4. Purchase of standing crop.
  5. Royalty income from mines.
  6. Income from butter and cheese making.
  7. Income from Plantation companies.

3. Assessee [Section 2(7)]: Asseess means a person by whom any tax or any other sum of money is payable under this Act.

4. Assessment [Section 2(8)]: The process of determination of income or loss or refund or tax liability on an assessee is known as assessment.

5. Assessment Year [Section 2 (9)]: Assessment Year means the period of 12 months commencing on the first day of April every year. It is, therefore, the period from 1st of April to 31st of March, Ex: The assessment year 2017-2018 will commence on 1-4-2017 and end on 31-03-2018. The Tax levied, in each assessment year, with respect to or on the total earned by the assessee in the previous year.

6. Person[Section 2(31)]: In income tax person is defined to includes:

  1. An individual
  2. Hindu undivided family
  3. A company
  4. Afirm
  5. Association of person and body of individuals
  6. Local authority
  7. Every artificial juridical person not falling within any of the above mentioned categories.

7. Heads of Income

  1. Salary
  2. House property
  3. Capital gain
  4. Business/Profession
  5. Other sources
8. Gross Total Income [Section 80 B(5)]: It is the aggregate taxable income under the different heads of income such as income from salary, income from house property, income from profits or gains of business, capital gains and income from other sources. Total income computed in accordance with the provision of the act before making any deductions under Sec 80 C to 80 U
9. Total income [Section 2(25)]: Total income is arrived after making various deductions from gross total income under section 80 C to 80 U. It is computed on the basis of residential status of an Assessee.