Introduction to income tax/ basic terminology of income tax
Introduction:- As per article 265 of the Constitution of India, No tax shall be levied or collected except by authority of law it means if the government wants to levy and collection of tax then there shall be a law and law framed by the government. Constitution of India gives the power to the Parliament and State Legislatures to levy, collect tax and to make laws on the matters in list I, II & III of Seventh Schedule to Article 246.
Lists of the Seventh Schedule to Article 246:-
| List | Power to make laws |
|---|---|
| I (Union List) | Parliament (Central Government) |
| II (State List) | State Legislatures |
| III (Concurrent List) | Both Parliament and State Legislatures |
Note: Entry 82 of the Union List i.e., List I in the Seventh Schedule to Article 246 of the Constitution of India has given the power to the Parliament to make laws on taxes on income other than agricultural income.
Income tax is one of the major source of revenue for the Central Government.
Central Government collects income tax from company in form of corporation tax and from non-corporate assessees.
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:-
- Income Tax Act-The levy of income-tax in India is governed by the Income-tax Act, 1961. It extends to the whole of India & came into force on1st April, 1962. It contains sections 1 to 298 and schedules I to XIV.
- Annual Finance Act– Amendments in Direct tax is brought by Finance Act.
- Income Tax Rules- These rules are issued by CBDT for the proper administration of the Act.
- Circulars and Notifications– Circulars issue to deal with specific problem and doubts relating to the scope and meaning of provisions of the Act, if any. Department is bound but not assessee by the circulars.
- Notifications- issued by the Central Government to give effect to the provisions of the Act.
- Case laws:- Case laws of Supreme court and High court are taking into consideration when dispute arises.
Important Definitions:-
- Assessee: As per section 2(7), Assessee” means a person by whom income tax or any other sum of money is payable under this Act.
- Assessment:- As per section 2(8), procedure of determine the income of assessee.
- Assessment year- As per section 2(9), the financial year which starts on April1 and ending on March 31 of the next year.
- Person- As per section 2(31), person includes An individual, HUF, company, firm, AOP, BOI, local authority and every artificial juridical person.
- Previous year- As per section 3, means the financial year immediately preceding the assessment year. The income earned during the previous year is taxable in the assessment year.
- Income- As per section 2(24), Income includes profits & gains, dividend, voluntary contribution, value of perquisites, allowance, capital gains, winnings etc. (for details refer sec. 2(24)).