Income Tax Act of 1961

Taxes are the payments that are needed to be paid by the residents in the name of the country. These payments are compulsory in nature. Each individual in the country has been levied with the responsibility to make these payments, without failure. The rates of these payments are decided by the Government of India. These payments by the citizens are used for the growth and development of the country, in the form of several schemes and projects by the governing bodies. In simple words, taxes are the source of income for the government or is the revenue of the government. The Constitution of India gives the authority to collect taxes to the State Governments and the Central Government. The legislative branch of the government can pass laws for the approval of the taxes that are collected by the Government from the residents.

Background

The scripts of the system of taxation trace its roots to the ancient texts of Arthashastra and Manusmriti. In earlier days, various sections of the population in the country would pay taxes on gold, silver, and other agricultural items. The basic taxation system in the country takes these ancient texts as its parent. The taxation system includes taking up the basic ideas from the ancient texts. The basic idea of this taxation system was laid by the British officials. One of the most important elements of the taxation system is income tax. Income tax was introduced in this system by Sir James Wilson, in the year 1860. Since the time India gained its independence, these elements of taxation are seen as a weapon to decrease the disparity of incomes among different sections of the population in the country. The Indian constitution made the income tax rule. It is the tax paid out of the total income earned by an individual, which is needed to be paid by each individual. 

Types

Based on the Indian Taxation system, can be categorized into four types. These types are as follows: 

• Based on the Assessment Method- Based on assessment methods, taxes include the Ad-valorem tax (value of goods) and the Specific duty tax (units of products). 
• Based on the coordination between base and rates of taxes- We have digressive and regressive taxes. These taxes include excise duty, GST, etc. 
• Based on the impact and incidence of taxes- We have direct taxes (wealth tax, corporate tax, etc) and indirect taxes (GST, Sales tax, etc).
• Based on government levied taxes- We have Custom duties, GST, Land revenues, tolls, water and property taxes, etc. 

Act of 1961

The Income Tax Act 1961 is an exhaustive document that points to and highlights the regulations and rules governing the taxation system in the country. This act provides for the administration, collection, recovery, and levying of the taxes for and by the government of India. 

The act was approved in the year 1961- which includes a total of 23 chapters and the number of income tax sections was 298. Some of the critical income tax section include the tax deduction- investments, pension funds, national pension schemes, interest on saving accounts, and the income interest for senior citizens. These income tax sections point to several aspects of the taxation system in the country. There are various stages in which one must pay income taxes. These stages are:

• Property
• Capital Gains
• Profit in the business/profession
• Income from other sources
• Salary/Stipend of an individual

Each year, in the month of February, the government of India brings out the financial budget for the upcoming year. This budget calls for amendments or changes in the scripts of the Income-tax Act, 1961. This is mainly because of the growing population in the country. The amendments made to the financial budget are inserted in the income tax act 1961, once the President of the country has approved the changes. 

Conclusion

Taxes are the payments that are needed to be paid by the residents in the name of the country. These payments are compulsory in nature. One of the most important elements of the taxation system is income tax. Income tax was introduced in this system by Sir James Wilson, in the year 1860. Since the time India gained its independence, these elements of taxation are seen as a weapon to decrease the disparity of incomes among different sections of the population in the country. The income tax act 1961 is an exhaustive document that points to and highlights the regulations and rules governing the taxation system in the country.