Important Definitions Under the Income Tax Act 1961

For ages, taxes have been a significant source of revenue and a tangible means of ensuring public welfare for the government. Here is more about the Income Tax Act.

In India, income tax is paid to the government per one's earnings or profits. The government uses the money it collects in taxes for various welfare programs, including infrastructure improvements, defence spending, and subsidies.

The comprehensive law that establishes the guidelines for taxation in India is the Income Tax Act 1961.

Important definitions under the Act

Income Tax

The Act states that the Income Tax is levied on the total taxable income of an assessee's assessment year, and the Central Government collects it for each financial year.

Year of Assessment

As defined by the Act, the assessment year is 12 months beginning on April 1 and ending on March 31 of the following year. This year, the financial year's income gets evaluated. For instance, if the assessment year is 2022–23, the financial year for which the assessee's income will be assessed is 2021–22.

Person

A person to impose income tax would be any of the following, per Section 2(31) of the Act: an individual, a Hindu Undivided Family (HUF), a company, a firm, a local authority, and any artificial or juridical person not falling under all of these headings.

Assessee

A person liable to pay taxes under any provisions of the Income Tax Act, 1961 is an assessee under Section 2(7). This person may have violated the Act's provisions or must have been deemed to be an assessee under the Act.

Assessment

The assessment is the procedure used by the Income Tax Authorities to verify the details of the income lodged by the assessee in the Income Tax Return, including the calculation of the income tax payable by the assessee and the imposition of additional tax liabilities on him, if necessary.

Resident Indian

According to the Income Tax Act of 1961, if an assessee spends or resides in India for at least 182 days, i.e., 6 months and two days, he is considered a resident of India for that fiscal year, and his entire income earned is taxable under the Act.

Non-resident Indian

According to the Act, if a person does not reside in India for at least 182 days or lives abroad for 365 days in a foreign country, he is considered a Non-Resident Indian for that fiscal year, and his income earned in India is only taxable under the Act.

Income

According to Section 2 (24) of the Act, any monetary benefit, any subsidy or relief or reimbursement, any prize, any subsidy, any capital gains from the sale proceeds of the property, or any illegal monetary benefit will be treated as income to impose Income Tax under the Act.

Why was the Act amended?

According to the IMF report, India, the world's fifth-largest economy, required an overall amendment and change in the entire tax structure. Even essential commodities were over-taxed in our country, putting a strain on the pockets of poor and middle-class families and contributing to social inequity and dissatisfaction.

It is shocking to learn that even water and food grains, which are the foundation of human existence on this planet, are taxed in India; instead, diamonds and luxury items must be heavily taxed to maintain parity; and some life-saving drugs and medicines get heavily taxed in our country, which is cause for concern.

There was an urgent need to implement a progressive taxation system in our country, which was a regressive taxation system. As a result, the poor became more inferior, and the rich became richer.

Who are income taxpayers in India?

A taxpayer is any individual or business entity who owes taxes to the central, state or local governments. Individual and business taxes are the primary source of revenue for governments. Individual taxpayers in India are usually required to file and pay both central and state tax returns annually.

Businesses must also file annual returns but typically plan for and pay estimated tax payments.

Section 10 of the Act

Section 10 of Income Tax Act lists all exemptions available to salaried professionals when paying income tax. While the word "exemption" does not appear in this section, it focuses on income sources that do not contribute to total income. As a result, this total income gets primarily calculated when calculating a salaried professional's total tax liability.

Thus, if you are wondering what Section 10 of Income Tax Act is, this section is divided into several subsections that discuss the various tax exemptions that can be obtained while paying income tax.

To Conclude:

Tax is the foundation of the nation's existence; if collected and used wisely, it results in the country's prosperity. On the other hand, misusing and collecting without proper planning can lead to destruction. Hence, to avoid the misuse of tax collection, rules and regulations were made stringent in the Income Tax Act 1961.

There are no problems with tax collection, but the public should see development and prosperity in the form of IIMs, IITs, government schools, government hospitals, and so on.