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

Income tax is a prominent form of tax payable to the Government based on one’s income. It is utilized by the Government for public welfare like infrastructure development, subsidies, defense funding, and more. This direct tax falls under the Income Tax Act, 1961, and must be paid if your income meets the eligibility criteria. Understanding the Income Tax Act requires a firm understanding of its numerous chapters and sections containing rules and regulations. This article explains these laws and important sections that you, as a taxpayer, should know.

What is the Income Tax Act?

The Income Tax Act was passed in 1961 with the aim of promoting economic development in the country. The act comprises a comprehensive set of chapters that ensure compliance with the tax regulations of the country. This tax is levied on the taxpayer’s annual income according to the tax slabs recommended annually. Depending on the applicable slab rate, the tax is levied on the taxable income. The Indian Government amends the Income Tax Act every year in February. It is therefore recommended that one should always check the current updates regarding tax slabs and other income tax laws 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 under the 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 INR 2.5 lakhs, you are liable to pay income tax. Here are the entities and individuals liable 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

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 that every taxpayer should 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. Each sub-section under this section provides for specific deductions that taxpayers should be aware of.
• Section 80TTA – Tax deduction for interest on savings account: According to Section 80TTA of the Income Tax Act (Chapter VI-A), individuals can claim 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?