A Quick Guide To Income Tax Act 1961

 About Income Tax Act, 1961

The Income Tax Act, 1961 is an act to levy, administer, collect, and recover income tax in India. The act is effective from 1 April 1962. It consists of 298 sections and 14 schedules. The act helps determine a taxpayer’s taxable income, tax liability, appeals, penalties, and prosecution. The government has been making amendments to the act from time to time.

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 Rules, 1962

Income Tax Act, 1961 divides the incomes under following five heads for taxation:

• Salary
• Income from house property
• Capital gains
• Profit and gains from business or profession
• Income from other sources.

Other sources will include all incomes which do not fall in any of the other four categories. Most prominent other incomes would be – interest on bank deposits, bond coupons, and gifts. Any money you receive from a life insurance company as taxable maturity benefit or claim amount is also added to other incomes.

The retirement benefits, however, you should count under salary when taxable. Income from house property will only include rental incomes. If you sell the house the gain or loss are treated as a capital gain.

After 2020 budget you have two options to estimate your taxes, old regime and the new regime. The old regime continues to allow the deductible allowances and deductions on savings. However, the new regime focuses on reducing the tax for those not participating in these schemes.

Under the new slabs, there are no distinctions based on age or gender of the taxpayer. Under old regime estimates the tax liability comes around Rs 2.3 lakhs due to the deductions from gross total income.

So, use the old tax regime if:

• You are already investing to meet your Section 80C and 80D deductions
• You have a running home loan on self-occupied property
• Otherwise, switching to the new regime will reduce your tax liability.