A brief about Indian Income Tax Law for Law Students and Lawyers

Income Tax Law in India - A Perspective

Tax payment is one of the most important things to do as a citizen of India. Going by the book, taxation is a tool used by the government for the economic development of the country. Its significance lies in the procurement of resources to formulate policy schemes and a source of revenue for removing the economic disparity in India. Being an Indian Citizen, law student, or lawyer, it is critical to understand the comprehensive and cohesive tax system of India which you can do through Chaturvedi & Pithisaria’s Income Tax Law book. You can buy this new edition to increase your understanding of Indian Income Tax law.

Here we are sharing the basics of Income Tax Law in India:

History of Income Tax in India

In the year 1860, taxes known as the "Union Budget" were introduced in India by Sir James Wilson, pre-independence India’s finance minister. Here, income tax was divided into 4 schedules – income from landed property, professions & trades, securities, and pensions & salaries. In the years 1866 – 1961, various amendments were made to the Income Tax Act which increased its complexity. Presently, there are 5 heads of income under the Income Tax Act (ITA) – Salary, House Property, Profits & Gains of the Business or Profession, Capital Gains, and Other Sources.

What is the Chargeability of ITA?

Article 256 of the Indian Constitution deals with ITA chargeability. According to Article 256, only the authority of law can collect and levy tax. Also, there is a certain amount which is set as a cap for the chargeability of tax. When the total income exceeds this amount, a person is chargeable to income tax at rates stated in the Finance Act.

What is Residential Status?

According to ITA, the term "resident" comprises of different criteria regarding residences of entities such as an individual, a firm, or a company. A company is a resident in India if its place of operations is in India in the relevant financial year. On the other hand, for an individual, the residential status depends on the duration of their stay in India.

What is the Scope of Income?

For an assessee, the total income is determined by his residential status in India. According to ITA, Indian residents are tax liable on their global income. However, non-residents are taxed only on the income sources in India. The scope of these rules is extended by considering different circumstances where the incomes are sourced from India and hence are tax liable in India. It includes all incomes – direct or indirect – from any business connection, property, assets, and transfer of a capital asset in India.

What is a Tax Year in ITA?

When an income is earned in a financial year, it is termed as "Previous Year", which ends on 31st March every year. The year after this is called "Assessment Year" and the income of the previous year is taxed this year. This includes 12 months after 1st April every year and ends on 31st March of the following year.

We have covered the basics of ITA that you should know about. However, there are many things that cannot be covered here, and you need to go in deep to understand them. For example, in ITA the term "income" has many important details associated with it such as the difference between capital and revenue receipt. You can understand the intricacies of ITA laws in Kanga &Palkhivala's Law and practice of Income Tax 11th edition, which has various facets of ITA covered with precision and clarity.