What are the components of Income Tax Laws
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Income Tax is levied on the total income of every person on the income earned during the financial year.
To calculate accurate income tax, a person is expected to know Income Tax laws, and Income Tax laws in India consist of the following components, it means to understand the Income Tax Laws, it is expected to consider its components as stated below:
- Income Tax Act, 1961
- Annual Finance Act
- Income Tax Rules
- Circulars/Notifications
- Legal Decisions of the Court (High Court/Supreme Court)
Let’s find out in detail about these components and their significance:
Income Tax Act, 1961
Income Taxes are governed by Income Tax Act, 1961 and it extends to the whole of India, it means Income Tax Act and its provisions will apply all over India i.e., to each state/territory.
This Act contains 1 to 298 Sections and Schedules I to XIV. This act undergoes various changes as warranted by the Annual Finance Act, which get passed by Parliament, and other legislations like Taxation Laws (Amendment) Act.
The Annual Finance Act
Annual Finance Acts are presented by Finance Minister each year in the Budget session in Parliament. The Finance Minister presents the Finance bill and as and when it passes by both the houses (Lok Sabha and Rajya Sabha) and after receiving assent from the President of India, it becomes Finance Act.
Finance Act contains an insertion of New sections/provisions, substitution, or amendment of existing provisions.
The First Schedule to Finance Act contains four parts that specify the rates of taxes-
Part-1: Specifies taxes applicable to the current Assessment Year
Part-2: Specifies TDS rates of the current Financial year
Part-3: Specifies Income Tax Rates chargeable under Head “Salaries” and computation of Advance tax
Part-4: Specifies rules for computing Net Agricultural Income
Income Tax Rules, 1962
The Income Tax Rules are looked after by the Central Board of Direct Taxes (CBDT). CBDT empowers to make rules to carry out the purpose of Income Tax.
Income Tax Rules are framed for the proper administration of the Income Tax Act and it changes from Time to time or as and when warranted by the situation.
These rules are very important to read along with Income Tax Act.
Circulars and Notifications
Circulars are issued by CBDT from time to time to deal with certain specific problems and to clarify doubts regarding its scope and meaning of certain provisions of the Act. Circulars are issued for the guidance of the officers and/or assessee. However, circulars cannot override the provision of the Act.
It means circulars are issued to facilitate the provisions of the Act. Any circular issued which is not by the provisions of the Act shall be disregarded.
Circulars shall have a binding effect on the Income Tax Department, i.e., Income Tax Department is bound to follow the instructions given in circulars, however, the assessee is not bound by circulars, they can take advantage of Beneficial circulars.
On the other hand, Notifications are issued by Central Government to give effect to the provisions of the Act. The notifications are issued by CBDT and shall be binding on both Department and Assessee.
Legal Court Decisions
Case laws are also very important and unavoidable part of Income Tax laws. It is always not possible for Parliament to consider each and every situation while framing legislation. Hence situation or cases not considered while making laws, Judiciary will hear the disputes between the Assessee and the Department and gives decisions on various issues.
Supreme Court is the Apex court of the country and laws/decisions laid down by Supreme Court will become Law of land, meaning it shall be applied to the entire India, unless such case laws shall be re-framed or over-ruled by the Parliament.
The decisions of the High Court will be applicable in respective states in which such High Court have Jurisdictions.
We hope you like reading our above article and hopefully you might have gained some knowledge about Components of Income Tax Laws. We love to hear your feedback, please do write us at [email protected] in case of any question or any concerns.
Team Taxation Insight
