Top 11 Features of Income Tax Act 1961 – Best Guide of 2024

The income tax is one of the important types of taxes in India regulated mainly by the Income Tax Act of 1961. It is an immediate form of taxation collecting on the income generated within the Indian Territory by individuals and companies. 

The income tax revenue is valuable in the role it has in the economic budget, by financing most services that are provided by the government as well as the development of infrastructure.

Another reason is more understanding of features of income tax act 1961 is important for taxpayers, as it allows them to solve problems connected with tax legislation compliance and to apply effective financial planning. 

This blog post explores what income tax in India is and what it entails, the top 11 features of income taxact 1961, taxation rates for residents and non-residents, How and where to file, and the Income tax department and its importance.

What is the Income Tax?

Income tax is another direct tax that is collected by the government from every income earner, be it an individual, a business firm, or any other entity.

It is based on the belief that it is right and fair to let every person and enterprise contribute a share to meet the expenses of the government and help build roads, schools, hospitals, and social security systems. 

The income tax payable depends on the income of the taxpayer, tax charges vary according to this or that income limit. Income tax makes it possible for the government to have sufficient sources of revenue so that it can run its activities in the country in the best way to meet the needs of the citizens.

What is the Income Tax Act 1961?

The Income Tax Act 1961 is the legal body that supports the implementation of income tax laws in the country. Passed in the Indian Parliament, the Income Tax Act lays down detailed provisions for establishing the manner of taxation of various income classes, the tax rate, and the allowable deductions or exemptions. 

The Act also outlines the authorities of taxpayers, tax administrators, and sanctions in case of violation of the provisions. It has been reviewed several times to suit certain changes in economic life and to make the taxation system fair.

What are the Top 11 Features of Income Tax Act 1961?

We have told you all about the top 11 features of Income Tax Act 1961, a lot of information has been provided below so that you can get all kinds of information about it that no one else is able to offer you;

1. Income Taxability
2. Allowable Deductions
3. Assessing Tax Authorities
4. Progressive Taxation
5. Annual Information and Financial Transaction Statement
6. Authorized Representatives
7. Direct Tax Nature
8. Equity in Taxation
9. Income Tax Calculation
10. Income Tax is a Central Tax
11. Instructions to Subordinate Authorities

Income Taxability

Income tax in India is levied on the total income of every individual, HUF, company, and any other legal entity. Income is classified into various heads for tax purposes:

• Salary: It includes child wages, pension, gratuity, allowances, and other emoluments.
• House Property: Amount received from rented or owned buildings.
• Business or Profession: Income arising from trade, business, or profession.
• Capital Gains: Income received from selling property and stocks, among other assets.
• Other Sources: It is income from sources such as interest, dividends, or any other incidental receipts.

In India, taxpayers have to calculate their taxable income as per these income heads and pay the Tax demanded at the applicable rates.

Income Taxability is the 1st feature among the Top 11 features of income tax Act 1961 and also a very important one.

Allowable Deductions

In India, the income tax structure has concessions to reduce the amount of taxable income of individuals and companies. These deductions motivate savings and investments towards points that will be beneficial for both the taxpayer and the economy.

• Section 80C: Deduction up to Rs 1.5 lakh for investments made in PPF, life insurance premiums, ELSS, etc.
• Section 80D: Allowances for medical insurance premiums paid for an individual and his dependents.
• Section 24: Interest paid on housing loan in respect of self-occupied property: Deduction is allowed under this.
• Section 80G: Possible deductions relating to gifts made to specific types of organizations.

These allow taxpayers to reduce their overall tax bill to be able to save and spend more for the progress of the economy.

Allowable Deductions is the 2nd feature among the Top 11 features of income tax Act 1961 and also a very important one.

Assessing Tax Authorities

India’s income tax is under the Department of Revenue, Ministry of Finance. The system includes a hierarchy of tax officials who are responsible for assessing taxes, managing disputes, and collecting revenue:

• Assessing Officer (AO): Head of the standard for calculating the taxable income of an individual or company.
• Commissioner of Income Tax (CIT): Supervisor of assessments who is responsible for conducting activities in the assessment area in his area.
• Income Tax Appellate Tribunal (ITAT): Responsible for adjudicating disputes between compliers and the tax department.

Government agencies dealing with tax assessments include assessing returns, bringing refunds, and ensuring compliance in cases where taxes have not been properly accounted for or paid.

Assessing Tax Authorities is the 3rd feature among the Top 11 features of income tax Act 1961 and also a very important one.

Progressive Taxation

Currently, the Indian tax system is progressive, which means that people with higher incomes pay more taxes. This ensures that people who earn more will pay more than people with lower incomes; thus, it supports equality in the payment of taxes.

• The poor, needy, and low-income people earn less taxes up to a certain level or do not earn any taxes at all.
• The tax slabs are designed in such a way that people who are rich pay more taxes while the poor are relieved from paying more taxes.

This progressive structure helps in reducing economic inequalities in society and also helps in creating a society with equal distribution of wealth.

Progressive Taxation is the 4th feature among the Top 11 features of income tax Act 1961 and also a very important one.

Annual Information and Financial Transaction Statement

Annual Information Statement (AIS) and Financial Transaction Statement (Form 26AS) are the two primary sources used by the Income Tax Department to monitor high-value financial and taxable income transactions.

• AIS: It is informative about revenue generation from various activities, investments, and financial operations.
• Form 26AS: I have provided them with refunds for TDS deductions, advance tax payments, and tax credits.

These details help the tax department to ensure that taxpayers under it adequately report their total income and do not engage in tax fraud.

Annual Information and Financial Transaction Statement is the 5th feature among the Top 11 features of income tax Act 1961 and also a very important one.

Authorized Representatives

Taxpayers require assistance to explain their case to tax authorities in certain cases. A Power of Attorney is a person of any nationality, be it a natural person, individual, chartered accountant, tax consultant, or other equivalent qualification, who is entitled to represent the taxpayer.

• Such representatives help in the areas of income tax declaration and filing of returns, enhanced assessments, and disputes.
• They are responsible for ensuring that taxpayers are tax-compliant and assist in resolving any compliance-related issues with the tax department.

The same applies to authorized representatives where there is a complex tax situation or legal assistance is required.

Authorized Representatives is the 6th feature among the Top 11 features of income tax Act 1961 and also a very important one.

Direct Tax Nature

It is a direct tax because the entire responsibility of taxation is shifted to the earner. This is different from indirect taxes such as the Goods and Services Tax (GST), where Tax is collected through goods and services.

• Direct taxes help everyone pay taxes based on their ability to pay. 
• Voluntary compliance is expressed by the taxation capacity of income tax and the responsibility of the citizen for the financial and taxation aspects.

Direct Tax Nature is the 7th feature among the Top 11 features of income tax Act 1961 and also a very important one.

Equity in Taxation

A key feature of income tax in India is that exemptions and rebates are an integral part of the structure of tax policy because of the concern demonstrated for equality. 

Making the Tax progressive on the other hand, exemptions and deductions are meant to ensure that the taxpayer is able to relieve himself to the level that society expects of him that he can afford without any strain.

• This provides for fairness by proportional taxation for everyone in the same pay bracket which is known as horizontal equity.
• Within vertical equity, it is necessary that individuals earning more income be subjected to more taxes to have a rational distribution of income.

Horizontal equity is significant as it promotes fairness and promotes the fight against economic inequalities within the country.

Equity in Taxation is the 8th feature among the Top 11 features of income tax Act 1961 and also a very important one.

Income Tax Calculation

Calculating income tax involves several steps:

• Determine Gross Total Income: Sum income from all heads—salary, business profits, capital gains, etc.
• Claim deductions and exemptions: Income can be reduced using specific deductions (for example, under Section 80C, 80D).
• Calculate Tax Payable: As per the income tax rate determined from the slab rate for the taxpayer’s income category.
• Apply for TDS Credit: Deduct TDS or advance Tax if you have paid.
• Pay the Remaining Tax: However, if any other additional tax is to be paid, it must be paid before the due date.

This structured approach clarifies compliance with the law and makes it easier for people and companies to prepare their taxes.

Income Tax Calculation is the 9th feature among the Top 11 features of income tax Act 1961 and also a very important one.

Income Tax is a Central Tax

Income tax in India is one of the central taxes, as it is collected by the central government and implemented across the country. Income tax remittances are used for the purposes of national development and welfare activities.

• The central government has the freedom to determine the tax amount across the board, within exemptions and slabs, based on the Union Budget.
• Income tax is not demanded from state governments, and thus, there is a centralized and consistent application of policy.

Income Tax is a Central Tax is the 10th feature among the Top 11 features of income tax Act 1961 and also a very important one.

Instructions to Subordinate Authorities

The Central Board of Direct Taxes (CBDT) is India’s apex body for tax policy which issues relevant guidelines and instructions to other subordinate issuing authorities with the objective of enhancing clarity of the general policy of Tax. 

• These instructions assist tax officers in the assessment, appeal, and collection of taxes. 
• They elaborate the meanings of certain provisions of the Income Tax Act, thereby assisting officers in their task of consistent application of the law. 

These instructions are important so that the various organization levels of tax administration stay consistent with the overall structure.

Instructions to Subordinate Authorities is the 11th feature among the Top 11 features of income tax Act 1961 and also a very important one.

What is the Scope of Income Tax?

The scope of income tax is defined as the extent to which income tax is levied with respect to income received by individuals, companies, and other legal entities. In India, income tax is applicable to various categories of income, including: 

• Individuals: Taxable income received by all classes of workers, traders, and other independent workers must be calculated within the specified tax band.
• Business: Business entities and economic associations are taxed on the basis of income received through their business undertakings.
• Hindu Undivided Family (HUF): Income from family properties and undertakings is taxable under HUF provisions.
• Other Entities: The income of trusts, associations, and institutions also comes under the scope of income tax.

In Conclusion

Income tax is a vital component of India’s economy. The integration of exemptions, deductions, progressive systems, and various forms of compliance manages the tax burden quite well. 

The government has also eased the process of filing taxes through rail and other online methods as more and more companies are adopting the use of e-filing. 

It is imperative for the income tax citizens of India to understand the basic features of income tax act 1961 so that they can plan their finances to fund the development of the nation by taking advantage of the available income tax deductions and credits.

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