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What is Income Tax Act

 

The Income-Tax Act

The Income tax Act 1961 is the charging statute of Income Tax in India. It provides for levy, administration, collection and recovery of Income Tax. The Government of India brought a draft statute called the "Direct Taxes Code" intended to replace the Income Tax Act,1961 and the Wealth Tax Act, 1957. However the bill was later scrapped.

Income tax of India is governed by Entry 82 of the Union List of the Seventh Schedule to the Constitution of India, empowering the central government to tax non-agricultural income; agricultural income is defined in Section 10(1) of the Income-tax Act, 1961. Income-tax law consists of the 1961 act, Income Tax Rules 1962, Notifications and Circulars issued by the Central Board of Direct Taxes (CBDT), annual Finance Acts, and judicial pronouncements by the Supreme and high courts.

Tax Benefits

Exemption: One need not pay any tax on such income. Interest income on PPF and REC tax-free bonds is fully exempt from tax.

Deduction: Investments u/s 80C upto Rs 1,50,000, mediclaim for self/parents u/s 80D, interest on loan for higher education of self/relative u/s 80E, donations made u/s 80G are deductible from the taxable income.

Rebate: After income tax is computed, the actual tax payable is reduced, if a rebate is allowed on account of specific investment that was made.

Allowances: Paid in addition to salary, to meet specific expenses. Common allowances include DA, house rent, LTA, education, medical, transport etc.

Indexation: Used to adjust the purchase price of an investment to reflect the effect of inflation on it, indexation helps to lower long-term capital gains, which brings down the taxable income.

What is the Rules of Income Tax

Any Indian citizen aged below 60 years is liable to pay income tax, if their income exceeds Rs 2.5 lakhs. If the individual is above 60 years of age and earns more than Rs 2.5 lakhs, he/she will have to pay taxes to the Government of India.

Individuals having an annual income of up to Rs 5 lakh have effectively been made tax free by offering a rebate under Section 87A of the Income Tax Act, 1961. People who have an annual income of over Rs 50 lakh have to pay an additional surcharge on the amount of the income tax.


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