Answer By law4u team
Income tax is a direct tax imposed by the Government of India on the income earned by individuals and entities (like companies, firms, etc.) during a financial year. It is a legal obligation, and the collected tax is used by the government for public welfare, infrastructure, defense, education, and other national needs. Governing Law: Income tax in India is governed by the Income-tax Act, 1961, and is administered by the Central Board of Direct Taxes (CBDT), under the Ministry of Finance. This law is still in force and has not been replaced by the new criminal laws like BNS, BNSS, or BSA, since it deals with taxation, not criminal offences. Who Has to Pay Income Tax? Income tax is levied on every person, which includes: Individuals Hindu Undivided Families (HUF) Partnership firms (including LLPs) Companies (domestic and foreign) Associations of Persons (AOP) Bodies of Individuals (BOI) Local authorities Types of Income Tax: 1. Personal Income Tax Paid by individuals based on their annual income. 2. Corporate Income Tax Paid by companies on their profits. Sources of Income Taxed: Under Indian law, income is classified into 5 heads: 1. Income from Salary – wages, pensions, bonuses, etc. 2. Income from House Property – rent earned. 3. Profits and Gains from Business or Profession 4. Capital Gains – profit from sale of capital assets like property, shares, etc. 5. Income from Other Sources – interest, dividends, gifts, etc. Income Tax Slabs (for Individuals): Tax is calculated based on income slabs. Different slabs apply depending on: Age (normal, senior citizens, super senior citizens) Choice between old regime (with deductions) and new regime (lower rates, fewer deductions) (Exact rates are updated yearly in the Finance Act, usually in the Budget.) Key Terms: Assessment Year (AY): The year in which income is assessed and taxed (e.g., 2025–26). Previous Year (PY): The year in which income is earned (e.g., 2024–25). PAN (Permanent Account Number): Mandatory for filing income tax. Return of Income (ITR): A form filed annually to report income and taxes. Filing Income Tax Returns (ITR): Individuals and entities must file ITRs every year (usually by 31st July for individuals). Filing is mandatory if income exceeds the basic exemption limit (varies by age and regime). Filing helps in claiming refunds, avoiding penalties, and maintaining financial/legal compliance. Penalties for Non-Compliance: Failure to file returns, concealment of income, or evasion of tax can lead to: Penalties Interest on unpaid tax Prosecution, including imprisonment, in serious cases (handled under the Income-tax Act, not BNS) Why Is Income Tax Important? Funds public services and welfare schemes Maintains economic stability Encourages financial accountability Supports nation-building
