Component of Income Tax

Table of content

1) Income Tax Act 1961

2) Annual Finance Act

3) Income Tax Rules

4) Circular and Notification

5) Legal Decisions of court

Income-tax is a tax levied on the total income of the previous year of every person. A person includes an individual, Hindu Undivided Family (HUF), Association of Persons (AOP), Body of Individuals (BOI), a firm, a company etc.

The income-tax law in India consists of the following components:–

1. Income Tax Act.
2. Annual Finance Act.
3. Income Tax Rules.
4. Circular/ Notification.
5. Legal Decisions of the court

 

Income Tax Act, 1961

The Income Tax Act is a comprehensive statute that focuses on the different rules and regulations that govern taxation in the country. It provides for levying, administering, collecting and recovering income tax for the Indian government.It was enacted in 1961.

• Income Tax Act provide sources of income, in which Taxes are levid.
• Income Tax Act provide  deduction on various sources and expenses.
• Income Tax Act defined who is liable to pay Taxes on Income.
• In Income tax act defined a person as an assessee.

Annual Finance Act

Every year the Finance Minister of the Government of India introduces a finance bill in the parliament Budget Session. When the Finance Bill is passed by both the houses of the Parliament and gets the assent of the President, it becomes the Finance Act. New provisions are inserted; existing provisions are substituted or amended every year in the Income-tax Act, 1961, and other tax laws by the Finance Act.

So, The Income Tax Act, 1961 changes every year with additions and deletions brought out by the Anual Finance Act passed by Parliament. Sometimes, the Government brings the Taxation Law Amendment Act also for amending the provisions of the Act.

Income Tax Rules

The Central Board Of Direct Taxes (CBDT) looked after the administration of the direct tax law.

• The CBDT is empowered to make rules for carrying out the purposes of the Act. 
• For the proper administration of the Income-tax Act, 1961, the CBDT frames rules from time to time. These rules are collectively called Income-tax Rules, 1962.
• Income Tax rules 1962 are also important with Income Tax Act 1961.

Circulars and Notifications

Circulars

• Circulars issued by CBDT from time to time to deal with problem & doubt.
•  Circulars are helpful to deal with certain specific problems and to clarify doubts regarding the scope and meaning of certain provisions of the Act.
• Circulars are issued for the guidance of the officer and Assessee.
• Circulars are treated as a guidance However, it cannot override the provisions of the Act.
• The department is bound by the circulars. While such circulars are not binding on the assessees, they can take advantage of beneficial circulars.

Notifications

• Notifications are issued by the Central Government to give effect to the provisions of the Act.
• The CBDT is also empowered to make and amend rules for the purposes of the Act by issuing notifications which are binding on both department and assessees.

Legal Decisions of the courts

• The decisions given by the Supreme Court becomes law and are applicable to all courts, appellate authorities, income tax authorities, and the assessees.
•  If there are two contradictory decisions given, the decision given by the larger bench prevails.
• High Court decisions bind the tribunal, income tax authorities, and all assessees in the jurisdiction.