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Income Tax

Income Tax Act of India – Overview and FAQs

Introduction to the Income Tax Act, 1961

The Income Tax Act, 1961, is the primary legislation that governs income taxation in India. It was enacted on 1st April 1962 and has undergone multiple amendments to keep up with changing economic and financial landscapes. The Act outlines the rules for taxability, exemptions, deductions, assessment procedures, penalties, and prosecution related to income tax.

The Act is administered by the Central Board of Direct Taxes (CBDT), which operates under the Ministry of Finance, Government of India. It applies to individuals, Hindu Undivided Families (HUFs), partnership firms, companies, and other legal entities.

Key Features of the Income Tax Act

  1. Scope of Taxation
    The Income Tax Act applies to all income earned by individuals and entities within India. In some cases, global income is also taxed if the individual qualifies as a Resident Indian as per the Act.
  2. Types of Income Taxed
    The Act categorizes taxable income into five heads:
    • Income from Salary – Earnings from employment.
    • Income from House Property – Rental income from real estate.
    • Profits and Gains from Business or Profession – Business income and professional earnings.
    • Capital Gains – Profits from the sale of assets like stocks, real estate, and bonds.
    • Income from Other Sources – Interest, dividends, gifts, and winnings from lotteries etc.
  3. Tax Slabs and Rates
    Income tax rates in India are structured under two regimes:
    • Old Tax Regime – Includes various exemptions and deductions.
    • New Tax Regime – Offers lower tax rates but removes most deductions and exemptions.
  4. Filing of Income Tax Returns (ITR)
    • Every individual and business entity earning above a certain threshold is required to file an Income Tax Return (ITR) annually.
    • Various ITR forms cater to different types of taxpayers, such as ITR-1 (Sahaj) for salaried individuals and ITR-3 for business owners.
  5. Tax Deducted at Source (TDS) and Tax Collected at Source (TCS)
    • TDS is a system where tax is deducted at the time of payment (e.g., salary, interest, rent, professional fees).
    • TCS applies to specific transactions such as the sale of goods and services.
  6. Assessment and Scrutiny Process
    • The Income Tax Department can scrutinize and assess filed returns to check for discrepancies.
    • Taxpayers may receive notices under Section 143(2) for detailed examination of their returns.
  7. Deductions and Exemptions
    • The Act provides several deductions under Section 80C, 80D, 24(b), and others, allowing taxpayers to reduce taxable income.
    • Exemptions under Section 10, such as House Rent Allowance (HRA) and Leave Travel Allowance (LTA), provide additional tax relief.
  8. Penalties for Non-Compliance
    • Late filing of ITR attracts penalties under Section 234F.
    • Concealment of income can lead to penalties under Section 271 and even prosecution under Section 276C for tax evasion.
  9. Advance Tax and Self-Assessment Tax
    • Taxpayers with significant income (beyond ₹10,000 in tax liability) must pay Advance Tax in installments during the financial year.
    • Any remaining tax after TDS and Advance Tax must be paid as Self-Assessment Tax before filing the return.
  10. Appeals and Dispute Resolution
  • Taxpayers can challenge assessments before the Commissioner of Income Tax (Appeals) or the Income Tax Appellate Tribunal (ITAT).
  • The Faceless Assessment Scheme has been introduced to make assessments more transparent and reduce human intervention.
  1. E-Filing and Digital Compliance
  • The Income Tax Department has introduced online filing (E-filing) and services such as Pre-filled ITRs, Instant PAN, and AIS (Annual Information Statement) to improve tax compliance.
  1. Recent Amendments
  • The government frequently updates the Act to accommodate economic and policy changes.
  • Key recent changes include taxation of cryptocurrency gains, revised TDS rates, and new provisions for startups and digital economy businesses.

Frequently Asked Questions (FAQs)

1. Who needs to file an Income Tax Return?

Answer:
Any individual whose total income exceeds the basic exemption limit (₹2.5 lakh for individuals below 60 years, ₹3 lakh for senior citizens, and ₹5 lakh for super senior citizens) must file an ITR.
Businesses, firms, LLPs, and companies must also file ITRs regardless of their income level.

2. What is the due date for filing Income Tax Returns?

Answer:

  • Individuals & HUFs (not requiring audit): 31st July
  • Businesses & Firms requiring audit: 31st October
  • Companies: 31st October
    The deadline may be extended by the government in special cases.

3. What are the different ITR forms?

Answer:
The Income Tax Department has different ITR forms for different types of taxpayers:

  • ITR-1 (Sahaj): Salaried individuals with income up to ₹50 lakh.
  • ITR-2: Individuals with capital gains or multiple properties.
  • ITR-3: Business owners and professionals.
  • ITR-4 (Sugam): Presumptive taxation scheme for small businesses.
  • ITR-5, 6, 7: For partnerships, LLPs, companies, and trusts.

4. What is Tax Deducted at Source (TDS)?

Answer:
TDS is a tax collection mechanism where tax is deducted before making payments such as salaries, interest, rent, and professional fees. It ensures steady tax collection and reduces tax evasion.

5. How can I check my income tax refund status?

Answer:
You can check your refund status on the Income Tax e-filing portal (www.incometax.gov.in) by entering your PAN and assessment year.

6. What are the penalties for late filing of ITR?

Answer:
A penalty of ₹5,000 applies if the return is filed after the due date but before 31st December. After 31st December, the penalty increases to ₹10,000.

7. What are the common deductions under the Income Tax Act?

Answer:
Some popular deductions available under the Act include:

  • Section 80C: ₹1.5 lakh deduction for investments in PPF, EPF, ELSS, and LIC premiums.
  • Section 80D: Deduction for medical insurance premiums.
  • Section 24(b): Deduction on home loan interest payments.
  • Section 10(14): Exemptions for allowances such as House Rent Allowance (HRA).

8. What is the New vs. Old Tax Regime?

Answer:

  • Old Tax Regime: Allows various deductions and exemptions.
  • New Tax Regime: Offers lower tax rates but eliminates most exemptions and deductions.

9. How do I rectify mistakes in my filed ITR?

Answer:
You can file a Revised Return under Section 139(5) before the assessment year ends.

10. How is capital gains tax calculated?

Answer:

  • Short-Term Capital Gains (STCG): 15% on listed stocks, as per slab rates for other assets.
  • Long-Term Capital Gains (LTCG): 20% with indexation//12.5% without Indexation for other assets.

For detailed information and the latest updates, visit the Income Tax Department Website.