Income Tax Act 1961: Income Tax Laws, Sections & Explanation

Income Tax Act is one of the prominent forms of tax that is payable to the Government on the basis of one’s income. It is utilised by the Government for public welfare like infrastructure development, subsidies, defence funding and more. This direct tax falls under the Income Tax Act of 1961 and must be paid if your income is eligible for the same. Understanding the Income Tax Act requires having a firm understanding of numerous chapters and sections containing rules and regulations. This article explains all these laws with important sections, which you must know as a taxpayer.

What is the Income Tax Act?

The Income Tax Act was passed in the year 1961 with the aim of achieving economic development in the country. The act comprises a comprehensive set of chapters that ensure the compliance of tax regulations of the country. This tax is levied on the taxpayer’s annual income as per the slabs recommended each year. Depending on the applicability of the slab rate, the tax is levied on the taxable income. The Indian Government makes amendments to the Income Tax Act every year in February. It is therefore recommended that one must always check the current updates on the slabs and other laws associated with income tax, on the official portal.

Which Income is Taxable Under the Income Tax Act?

The Income Tax Act has defined the sources of income that are taxable as per IT Act 1961. These are:

Income from salaries
Income from profits of business and profession
Income from capital gains (sale of capital assets)
Income from house property
Income from other sources stated in Section 56 of the Act

Who is Liable to Pay Income Tax?

If your annual income exceeds 2.5 lakhs then you are entitled to pay income tax. Here are all the people who are eligible to pay income tax:

Body of Individuals (BOI)
Hindu Undivided Family (HUF)
Companies
Corporate firms
Artificial Juridical Persons
Associations of Persons (AOP)
Local bodies

Also Read: How to Check Income Tax Refund Status Online?

List of Income Tax Chapters

Chapters

What do they explain?

Chapter I

The very first chapter introduces the Income Tax Act, offering an overview of its provisions and purpose.

Chapter II

This chapter discusses the beginning and the scope of the Income Tax Act.

Chapter III

This chapter of the Income Tax Act primarily deals with various aspects, including income tax charges, total income computation, dividend income, and income earned from overseas employment, among other related matters.

Chapter IV

This chapter includes all sources of income that are not part of the total income. This includes income from trusts, institutions, political parties and more.

Chapter V

This chapter focuses on the income of various individuals, including the income of the assessee. It includes earnings from sources such as capital gains, property and other types of income.

Chapter VI

This chapter covers the concept of income transfer in situations where there is no actual transfer of assets. This includes both transfer and revocable transfer scenarios.

Chapter VII

The seventh chapter discusses the deductions that are applicable to specific payments and types of income.

Chapter VIII

The eighth chapter pertains to discounts and the shares held by an association or organisation member.

Chapter IX

This chapter discusses matters related to double taxation relief, income tax rebates and income tax relief.

Chapter X

This chapter deals with specific provisions that enable individuals or entities to mitigate their income tax liabilities. It includes information on tax treaties with foreign countries and details regarding countries with which no tax payment arrangement exists.

Chapter XA

This chapter compiles all the anti-avoidance rules related to income tax.

Chapter XII

This chapter comprises tax calculations for unique or special cases.

Chapter XIIA

Non-Resident Indians are subject to special income provisions, which encompass provident funds, short-term capital gains, and more. These provisions are covered in sections 110 to 115BBE within this chapter.

Chapter XIIB

This chapter contains sections 115J to 115JF, which contain a set of special tax provisions applicable to specific types of companies.

Chapter XIIBB

This chapter outlines the taxation procedures applicable when a foreign company undergoes conversion into an Indian subsidiary.

Chapter XIID

This chapter exclusively focuses on the taxation of profits earned by domestic companies.

Chapter XIIDA

This chapter highlights the taxation of income distributed by a company.

Chapter XIIE

This chapter discusses the taxation related to the distribution of income to the unitholders.

Chapter XIIF

This chapter addresses the taxation of income derived from venture capital funds or venture capital companies.

Chapter XIIG

This chapter provides insights into the special provisions governing the taxation of shipping companies.

Chapter XIII

This chapter contains a comprehensive overview of income tax authorities, including details about their powers, oversight, appointments, and other relevant information.

Chapter XIV

This chapter includes sections 139 to 152 and comprehensively covers all aspects related to the filing of tax returns.

Chapter XIVA

This chapter includes provisions aimed at preventing redundant appeals, especially those already pending in the High Court or Supreme Court.

Chapter XV

This chapter outlines both special and general provisions for tax recovery from private companies, non-resident Indians and other relevant entities.

Chapter XVI

This chapter is dedicated to firms, encompassing their taxation and the assessment procedures applicable to them.

Chapter XVII

This chapter comprises a compilation of provisions for collecting and recovering taxes. It additionally addresses matters related to interest on overdue tax payments and situations involving tax recovery.

Chapter XVIII

This chapter covers income tax relief available to companies that distribute dividends to their shareholders, as well as relief provisions for companies engaged in charitable activities through their foundation branches.

Chapter XIX

This chapter addresses the process of obtaining tax refunds when taxes are overpaid to the IT (Income Tax) department.

Chapter XIXA

This chapter has sections 245A to 245L, encompassing all aspects of the settlement, including the application process, rebatement proceedings and related matters.

Chapter XIXB

This chapter encompasses sections 245N to 245V, which discuss advanced rulings and related subjects.

Chapter XX

This chapter provides information about the appeals directed toward the Commissioner, Deputy Commissioner, High Court and Supreme Court.

Chapter XXA

This chapter includes sections 269A to 269S, focusing on the procurement of real estate in specific circumstances as a countermeasure against tax evasion.

Chapter XXB

This chapter consists of a list of payment methods utilised when addressing cases of rectifying tax evasion.

Chapter XXC

This chapter addresses the acquisition of real estate by the central government in situations involving property transfers.

Chapter XXI

In this chapter, you will find a compilation of penalties that are relevant to taxpayers across different scenarios as outlined in sections 271 to 275. It encompasses a wide range of penalties, including those related to tax non-payment and non-disclosure, among others.

Chapter XXI

This chapter contains sections 275A to 280D, addressing matters related to prosecution and offences concerning non-compliance, as well as providing further information about the progression of the prosecution procedure.

Chapter XXIII

This chapter encompasses sections 281 through 298 and covers various miscellaneous topics that have not been discussed in the above chapters.

Also Read: Income Tax Portal

Important Sections of the Income Tax Act 1961

Out of all the sections in the numerous chapters of the IT Act 1961, there are five important sections which every taxpayer must know. These are discussed below:

Section 80C – Tax deduction on investments: Section 80C of the Income Tax Act permits deductions for specific investments like Tax Saving Mutual Funds and Tax Saving Fixed Deposits.
Section 80CCC – Tax deduction for contribution to pension funds: Section 80CCC promotes pension fund investments by allowing an income tax deduction from the taxpayer’s gross total income for the respective financial year.
Section 80CCD – Tax deduction for contribution to National Pension Scheme: Section 80CCD offers tax deductions for National Pension Scheme (NPS) contributions. Every sub-section under this section allows for unique deductions, which every taxpayer must know.
Section 80TTA – Tax deduction for interest on savings account: According to Section 80TTA of the Income Tax Act (Chapter VI-A), individuals can avail of deductions of up to INR 10,000 annually from the interest earned on savings account deposits held in post offices, banks or cooperative societies.
Section 80TTB – Tax deduction on interest income for senior citizens: Under Section 80TTB of the Income Tax Act, senior citizens aged 60 and above can claim tax deductions on interest income from their deposits. The maximum deduction permitted in a financial year is INR 50,000.

Also Read: How to Calculate Taxable Income on Salary?

Conclusion:

The Income Tax Act 1961 is a comprehensive income taxation act under the Ministry of Finance. The act is applicable to all salaried individuals, businesses, corporations, Hindu Undivided families and others mentioned above for an annual income above INR 2.5 lakhs. The IT Act consists of numerous chapters and sections that we have listed above, with details on each section’s explanation.

FAQs

What amount do I have to pay as an income tax on my salary?

The amount of income tax you will pay depends on your taxable income and the applicable tax slab. Taxable income is calculated by deducting eligible deductions from your gross income.

How does the government collect income tax?

The government collects taxes through three methods: Voluntary payments made by taxpayers to designated banks, such as advance tax and self-assessment tax Taxes deducted at source (TDS) from the recipient’s income Taxes collected at source (TCS)

Is agricultural income taxable?

Agricultural income is generally not taxable as per the Income Tax Act. However, if you also have non-agricultural income, your agricultural income will be considered in determining the tax rate applicable to your non-agricultural income.

You can reach out to the tax professionals at the Public Relations Officer (PRO) in your local Income Tax Department in case of any doubts. You can also get help from the Tax return Preparers (TRPs) at your nearest location.