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Income Tax Laws – I

Notes Income-tax plays a vital role in the economy of every country in the world. So, before one can
embark on a study of the law of income-tax, it is absolutely vital to understand some of the
expressions found under the Income-tax Act, 1961. The purpose of this Unit is to enable the
students to comprehend basic expressions. Therefore, all such basic terms are explained and
suitable illustrations are provided to define their meaning and scope.

1.1 Concept of Income Tax

Income tax is one of the forms of Direct Taxes. Tax is the financial charge imposed by the
Government on income, commodity or activity. Government imposes two types of taxes namely
Direct taxes and Indirect taxes. Direct tax is one where burden of tax is directly on the payer like
for instance income tax, wealth tax etc. Indirect tax is paid by the person other than the person
who utilizes the product or service like Excise duty, Custom duty, Service tax, Sales Tax, Value
Added Tax.

The taxes are collected for serving the primary purpose of providing sufficient revenues to the
State; taxes have come to be recognised as an instrument through which the social and economic
objectives of a welfare State could be achieved. They are utilized now for providing incentives
for larger earnings and more savings, fostering industrial development by selective concessions,
restraining ostentatious expenditure, checking inflationary pressures and achieving social
objectives like inequalities and the enlargement of opportunities to the common man.
Income-tax is one of the major sources of revenue for the Government. The responsibility for
collection of income-tax vests with the Central Government. This tax is levied and collected
under Income-tax Act, 1961. The Income-tax Act, in its present form came into force on and from
1st April, 1962. Before this, the Indian Income-tax Act, 1922 was in force. The procedural matters
with regard to income-tax are governed by the Income-tax Rules, 1962, its earlier counterpart
being the Income-tax Rules, 1922.
The Income tax Act contains the provisions for determination of taxable income, determination
of tax liability, procedure for assessment, appeal, penalties and prosecutions. It also lays down
the powers and duties of various income tax authorities.

Did u know? Basic things about Income tax in India.
Finance Act: Every year a Budget is presented before the parliament by the Finance Minister.
One of the important components of the Budget is the Finance Bill. The Bill contains
various amendments such as the rates of income tax and other taxes. When the Finance Bill
is approved by both the houses of parliament and receives the assent of President, it
becomes the Finance Act.
Notifications: The CBDT issue notifications from time to time for proper administration of
the Income tax Act. These notifications become rules and collectively called Income Tax
Rules, 1962.
Circulars: Circulars also issued by the CBDT to clarify the doubts regarding the scope and
meaning of the provisions. These provisions are issued for the guidance of the Income Tax
officers and assesses. These circulars are binding on the department, not on the assessee
but assessee can take benefit of these circulars.
Judicial Decisions: Decisions pronounced by Supreme Court becomes law and they are
binding on all the courts, Appellate Tribunal, Income Tax Authorities and on assesses
while High Court decisions are binding on assesses and Income Tax Authorities which
come under its jurisdiction unless it is overruled by a higher authority. The decision of a
High Court cannot bind other High Court.

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