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Income Tax Act 1961 | What is the Income Tax Act 1961 | YES BANK

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In India, individuals pay a tax on their income to the government. Different slabs have been set up for different income groups according to which people submit tax for each financial year. There are also some deductions that can be claimed to reduce one’s tax liability. This includes certain investments, savings, etc. All of these provisions and more are monitored and governed under the Income Tax Act 1961.

Here’s everything to know about the Income Tax Act 1961.

Brief overview of the Income Tax Act of 1961

Although the Act came into power on April 1, 1962, it is still referred to as the 1961 Act. Collection, administration, and recovery of income tax fall under the gamut of the Act. The collected tax is used by the government to fund various developmental and operational tasks carried out in favour of the public.

The Act contains the rules and regulations involving the process of taxation. There are 23 chapters in the Act with 298 sections.

Types of taxes computed under the 1961 Act

As per the Act, there are two types of taxes:

  • Direct tax: Direct tax is directly borne by an individual for the income they earn and is submitted to the government without any middlemen. For instance, income tax, capital gains tax, etc.

  • Indirect tax: Indirect tax is indirectly deposited to the government. This tax is usually charged on goods and service in the form of Value Added Tax (VAT), Goods and Services Tax (GST), etc.

Types of taxpayers under the 1961 Act

All individuals with an annual income of more than ₹2.5 lakhs are liable to pay income tax to the Government of India. The limit for senior citizens or people above the age of 60 years is ₹3 lakhs per annum. Income tax is not only limited to individuals and also extends to the following groups and organisations:

  • Hindu Undivided Family (HUF)

  • Association of Persons (AOP)

  • Artificial Juridical Persons (AJP)

  • Body of Individuals (BOI)

  • Corporate firms and companies

  • Local authorities

Types of incomes that qualify for tax under the 1961 Act

Income tax is charged on a number of incomes. These include:

  • Annual compensation for a job

  • Capital gains from investments

  • Income earned from a house property

  • Profits from a business or other profession

  • Any income from other sources, such as agriculture, etc.

Income tax slabs under the 1961 Act

The income tax slabs have been modified over the years, keeping in mind the country’s changing needs. The finance budget that comes out every year is where amendments to the Act and income slabs are announced. As per the latest rules, the income tax slabs are as follows:

Category

Existing Tax Regime

New Tax Regime

People with an annual income lower than ₹2.5 lakhs

0%

0%

People earning an annual income between ₹2.5 and ₹5,00,000

5%

5%

Individuals with a salary of ₹5 lakhs to ₹7.5 lakhs

20%

10%

People earning an annual income between ₹7.5 lakhs and ₹10 lakhs

20%

15%

Individuals earning ₹10 lakhs to ₹12.5 lakhs

30%

20%

People with an income of ₹12.5 lakhs to ₹15 lakhs

30%

25%

People earning an annual income of over ₹15 lakhs

30%

30%

Individuals are free to choose between the two regimes. However, the new tax regime even though lower, does not include any tax exemptions or deductions.

Conclusion

The Income Tax Act of 1961 is a detailed Act containing all provisions of taxation in the country. This Act eliminates any chances of fraud and helps the government maintain decorum.

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