Income Tax Act, 1961: Overview, Tax Slabs and More
Enacted in 1961, the Income Tax Act is the statute that helps in governing the taxation in India. Here is a detailed rundown of Income Tax Act, 1961.
Income Tax Act Of India
The IT Act consists of several chapters and sections with rules and regulations pertaining to the collection, levying, administering and recovering of income tax by the Indian government.
According to the official website of the Income Tax Department, the Income Tax Act comes with a total of 23 chapters and 298 sections. Each of these chapters and sections deals with various aspects of taxation in this country.
The Union Budget presented each year by the government brings in certain amendments to the Income Tax Act. Such amendments include changes in income tax slabs and rates wherever applicable. The modifications become a part of the Income Tax Act only in the next financial year after the approval of the President of India.
Types of Incomes under Taxation
1. Income from salary
Income tax is levied on these types of income:
Salary refers to any money that an individual receives for providing services under a contract. A salary is considered taxable only if an employer-employee relationship exists between the payer and payee. Apart from your basic salary, this category of income includes pension, wages, advances, allowances, gratuities, commission, leave encashment, and retirement benefits. Gross salary includes income from all the sources under the ‘income from salary’ head. Your employer will deduct TDS as per your applicable income tax slab (which depends on your taxable income) and pay it to the government.
2. Income from profits of business and profession
Any income from trading, manufacturing, commerce or a profession is included under the profits from the business/profession head. Besides business profits, income earned by self-employed individuals, contractors, freelancers and professionals like doctors, lawyers, life insurance agents, tuition teachers, etc., are taxable under this category of income. Any profits shown in a profit and loss account are included under this income head. These are some of the incomes under this head. Benefits received from a business, Profits earned by an organisation, Cash received from the sale of licenses, Profits, salaries or bonuses from a business partnership, Cash received from exports, and Profits from all companies and professions.
3. Income from capital gains
Capital gains refer to any profits made from the sale of any capital assets. Assets held by an individual or business as investments, including stocks, mutual funds, debt instruments, vehicles, jewellery, trademarks and patents, are capital assets. When you get profits by selling such assets, your income is included under this type of income. There are two types of assets depending on the holding period — short-term and long-term capital assets. For assets like jewellery and debt-oriented mutual funds, a holding period of over 36 months counts as long-term capital gains (LTCG). While holding period of over 12 months for assets like equity-oriented funds, listed securities and zero-coupon bonds count as LTCG.LTCG from equity shares and equity funds are taxed at a 10% rate over Rs. 1 lakh, while for other categories, this rate is 20%. Short-term capital gains (STCG) for equities and equity funds are taxed at a 15% rate. For other types, the short term capital gains are added to a person’s annual income and taxed as per the income tax slab rate.
4. Income from house property
As per Sections 22 to 27 of the IT Act, any income from house property is subject to tax. A house property includes any house, office, building, shop or commercial property. The legal owners of such properties have to pay applicable taxes under the ‘income from house property head. The Income Tax Act calculates taxable income under this head by considering the total standard income you can get from such property/land. The taxes do not depend on how much rent you receive from such properties unless you rent them to a business. If you stay in the property throughout the year, it is a self-occupied property, and thus no income tax is applicable.
5. Income from other sources
The income from other sources head is residuary in nature, i.e. it includes incomes that are not included in any of the other types of income. Section 56 of the IT Act defines which incomes are eligible for taxation under this category. It includes:
- Winnings from lotteries, horse races, crossword puzzles, gambling or any other type of betting
- Income from dividends
- Interest on compensations
- Sum received in advance or via negotiations for the transfer of assets
- Earnings received without consideration/inadequate consideration
- Income excluded from earnings of business/profession
- Earnings not taxable under salary income
Who is Liable to Pay Income Tax in India?
If your annual income is more than Rs. 2.5 lakh, then you are liable to pay income tax. Apart from individuals, these entities need to pay income tax:
- Hindu Undivided Family
- Corporate firms
- Companies
- Artificial Juridical Persons
- Body of Individuals (BOI)
- Associations of Persons (AOP)
- Local bodies
Also read: https://navi.com/blog/link-pan-to-aadhaar-using-income-tax-portal/
List Of Income Tax Chapters
| Chapters | Overview |
| Chapter I | The very first section introduces us to the income tax act and provides us with an overview of the same. |
| Chapter II | The beginning and scope or the extent of the Income Tax Act are discussed in this chapter. |
| Chapter III | The third chapter of the IT Act is primarily concerned with the income tax charge, the total income, dividend income, and income derived from working abroad, among other things. |
| Chapter IV | This chapter covers all sources of income that are not included in the total income. This includes income from trusts, institutions, political party income, and so on. |
| Chapter V | This chapter highlights the incomes of other individuals which includes the assessee’s income. Earning from capital gains, property etc. includes this type of income. |
| Chapter VI | Chapter six talks about income transfer in absence of actual transfer of assets. This includes both transfer and revocable transfer. |
| Chapter VII | Chapter seven talks about applicable deductions on certain payments and incomes |
| Chapter VIII | Chapter eight is about discounts and shares of a member in an association or body. |
| Chapter IX | Chapter nine is all about double taxation relief, income tax rebate and relief in income tax |
| Chapter X | This is about specific provisions that allow you to avoid paying income tax. This covers information on agreements with foreign countries as well as information on countries with which there is no tax payment arrangement. |
| Chapter XA | This chapter contains a list of all anti-avoidance rules for income tax. |
| Chapter XII | This chapter includes Tax calculations for special cases. |
| Chapter XIIA | Non-Resident Indians are subjected to special provisions for their income earned. This includes provident funds, short term capital gains, etc. This chapter comprises sections 110 to 115BBE. |
| Chapter XIIB | This chapter comprises sections 115J to 115JF. These sections contain a list of special tax provisions for certain companies. |
| Chapter XIIBB | This chapter contains a list of taxation procedures in the case when a foreign company converts into an Indian Subsidiary. |
| Chapter XIID | This chapter is all about the taxation of profits made by domestic companies. |
| Chapter XII DA | This chapter talks about the taxation of distributed income of a company. |
| Chapter XIIE | This chapter talks about taxation on the distribution of income of the unitholders. |
| Chapter XII F | This chapter deals with the taxation of income earned from venture capital funds or venture capital companies. |
| Chapter XII G | This chapter throws light on the special provisions for the taxation of shipping companies. |
| Chapter XIII | This chapter contains each and every piece of information about income tax authorities, their powers, control, appointments etc. |
| Chapter XIV | This chapter consists of sections 139 to 152. It handles everything about the filing of returns. |
| Chapter XIVA | It contains a list of provisions to avoid repetitive appeals for instance those which are already pending in the high court or supreme court. |
| Chapter XV | It highlights all special and general provisions of tax recovery from private companies, non-resident Indians etc. |
| Chapter XVI | This chapter is meant for firms, their taxation and assessment process. |
| Chapter XVII | This chapter contains a list of clauses to collect and recover the tax. It also talks about interest on late payment of taxes and cases where recovery is made. |
| Chapter XVIII | This chapter deals with income tax relief for companies because they pay dividends to their shareholders. Relief on the basis of companies involved in charity through their foundation wings. |
| Chapter XIX | This chapter deals with tax refunds in case there is the extra payment of taxes to the IT department. |
| Chapter XIXA | This chapter includes sections 245A to 245L which deals with every aspect of settlement like application, rebatement proceedings and more. |
| Chapter XIXB | This chapter consists of sections 245N to 245V which talk about advance rulings and other related topics. |
| Chapter XX | This chapter throws light on the appeals made to the commissioner, deputy commissioner, high court and supreme court. |
| Chapter XXA | This chapter consists of sections 269A to 269S. It deals with the acquisition of immovable properties for certain cases in order to counteract tax evasion. |
| Chapter XXB | This chapter comprises a list of payment modes in situations where there is a need to correct tax evasion. |
| Chapter XXC | This chapter deals with immovable property purchases made by the central government in transfer cases. |
| Chapter XXI | This chapter lists down the penalties applicable to the taxpayers in various cases under sections 271 to 275. This includes every type of penalty like non-payment of taxes, non-disclosure etc. |
| Chapter XXI | This chapter includes sections 275A to 280D. It deals with prosecution and offences with regards to compliance failure and other details on the way forward of the prosecution process. |
| Chapter XXIII | This chapter comprises sections 281 to 298. This chapter highlights all other miscellaneous topics which are not mentioned in the chapters mentioned above. |
Income Tax Slabs
Income tax rates have been modified over the years keeping in mind the changing needs of this country. All amendments to sections along with changes in tax rates are announced in the budget every year. Income tax rates of the new regime are as follows:
New tax regime
| Taxable income | Tax rate |
| Up to Rs. 2,50,000 | NIL |
| Rs. 2,50,001 to Rs. 5,00,000 | 5% of overall income above Rs. 2.5 lakh |
| Rs. 5,00,001 to Rs. 7,50,000 | Rs. 12,500+ 10% of total earnings above Rs. 5 lakh |
| Rs. 7,50,001 to Rs. 10,00,000 | Rs. 37,500 + 15% of total earnings above Rs. 7.5 lakh |
| Rs. 10,00,001 to Rs. 12,50,000 | Rs. 75,000+ 20% of earnings above Rs. 10 lakh |
| Rs. 12,50,001 to Rs. 15,00,000 | Rs. 1,25,000+ 25% of overall earnings above Rs. 12.5 lakh |
| Above Rs. 15,00,000 | Rs. 1,87,500+ 30% of total earnings over Rs. 15 lakh |
Regardless of the income group you belong to, you have to pay an additional 4% cess for health and education. Unlike the old tax regime, tax rates of the new tax regime are the same across all age groups. However, several deductions and exemptions that were available in the old regime have been removed in the new regime.
Since FY20-21, individuals have had the option to choose between new or old tax regime rates. You can compare your tax liability under both systems to select the one that is more beneficial for you.
Also read: https://navi.com/blog/income-tax-calculator/
Final Word
Various modifications in sections and chapters have been introduced over the years in the Income Tax Act to make it more inclusive. Such changes allow the government to make necessary adjustments according to the needs of the taxpayers.
FAQs On Income Tax Act
Ans: The amount of your income tax will depend on your taxable income and the tax slab that you fall in. Taxable income is the amount that you will get after subtracting the deductions from your gross income.
Ans: Here are some of the sections under which you can claim tax deductions:
Section 80C (deductions for investment in ELSS, PPF, NSC, etc.)
Section 80D (deductions for payments made towards health insurance premium and medical costs)
Section 80DD: (deductions for payments made towards medical treatment of a dependent with disability)
Section 80E: (deductions for expenses incurred due to the payment of interest of an educational loan)
Section 80G: (deductions for donations made to charitable organisations)
In addition, there are various other sections like Section 80TTA, 80RR, 80P, under which you can avail of a tax deduction.
Ans: The surcharges that are applicable as per tax rates across all categories are:
10% of the income tax if your total income is more than Rs. 50 lakh
15% of the income tax if your total income is more than Rs. 1 crore
25% of the income tax if your total income is more than Rs. 2 crore
Ans: Yes, you can calculate your income tax with an online tax calculator available on the IT Department website. Follow these steps:
Step1: Visit the official portal of the Income tax Department.
Step2: Now, scroll downwards and find the ‘Important Links’ option.
Step3: Tap on it and then select ‘Tax Calculator’.
Step4: You will be redirected to a new page.
Step5: Enter the necessary details in the relevant fields to check the tax liability.
Ans: Ans: Yes, you can apply for a tax rebate under Section 87A to reduce your taxable income. Under this Section, resident individuals can claim tax rebates of up to Rs. 12,500 if their total income does not exceed Rs. 5 lakh in a financial year. If your total income tax liability is less than Rs. 12,500 after factoring in Chapter VI-A deductions, you do not have to pay any tax.
Disclaimer
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
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