Income Tax Act 1961: Chapters, Objectives, Features, Provisions

Planning to pay your taxes for the first time? Are you confused between the different sections and provisions of income tax? Then know that you are not alone. Every first-time taxpayer should know the basics of how income tax is levied in India. In this regard, you need to know about certain aspects of the Income Tax Act 1961. The Income Tax Department levies taxes based on this Act passed by the Government of India. 

Keep reading this article to know more!

Budget 2024 Latest Update

Finance Minister Nirmala Sitharaman stated, "I am announcing a comprehensive review of the Income Tax Act of 1961. This will help reduce disputes and litigation, and it is expected to be completed within six months."

What is the Income Tax Act 1961?

The Income Tax Act 1961 is the set of rules and regulations upon which the Income Tax Department levies, administers, collects and recovers taxes. It contains 298 sections, 23 chapters and several important provisions which contain all the aspects of taxation in India. 

The nature of the Income Tax Act 1961 is direct i.e. the taxpayer must pay direct taxes at a certain percentage based on his/her income. 

Chapters of the Income Tax Act 1961

The Income Tax Act has 23 chapters in total, some of which have subparts. Find them mentioned in the table below:

To get further details on the contents of each chapter, you can download the Income Tax Act 1961 PDF from the Income Tax Department’s official website.  

Main Objectives of Income Tax Act 1961

The main objectives of the Income Tax Act 1961 are as follows:

• Price Stability

The IT Act maintains price stability in the economy by laying out regulations for direct taxes. It serves as a measure to control private spending, thereby keeping a check on the inflation of commodity prices.  

• Full Employment 

This Act reduces the income tax rates in order to promote higher demand for goods and services. This, in turn, leads to increased employment opportunities, thus fulfilling the objective of full employment. 

• Non-Revenue Objective

A higher tax rate is applicable for wealthy people compared to the poor. In this way, the Income Tax Act encourages a progressive taxation system that addresses the inequality in wealth among its citizens, carrying out its non-revenue objective. 

• Cyclical Fluctuations Control

When there is an economic boom, the income tax rates are increased, while in times of recession, it is reduced. In this way, the Act maintains control over cyclical fluctuations in the value of money. 

• Reducing Balance of Payment Issues

The Income Tax Act imposes customs duties on the import of certain goods. This helps encourage the domestic production of goods, thereby reducing the balance of payment difficulties for the authorities.   

Scope of Income Tax Act 1961

The scope or extent of tax implications under the Income Tax Act 1961 depends upon the assessee’s residential status:

Features of Income Tax Act 1961

Some of the salient features of the Income Tax Act 1961 are as follows:

• Income tax is a form of direct tax that needs to be borne by the taxpayer. It cannot be transferred to another individual. 
• The Central Government of India controls this form of taxation. 
• It is applicable to the taxpayer's income which was earned in the previous year. 
• Tax calculation is applicable based on the assessee’s income tax slab. 
• The government levies a progressive income tax rate so that rich and economically powerful individuals have to pay taxes at higher rates. 
• Deductions apply to a maximum limit per financial year in certain cases. 

Provisions of Income Tax Act 1961

There are several provisions in the Income Tax Act 1961. Some of the notable ones are:

• Appeal under Section 260A to the High Court and Section 261 to the Supreme Court 
• Annual information and financial transaction statement
• Appearance by an authorised representative
• Income taxability
• Undertaking transactions mode
• Assessing tax authorities
• Instructions to subordinate authorities
• Appeal application for reference by the Income Tax Officer

Final Word

Now that you have a clear idea of the Income Tax Act 1961, you can understand how the Income Tax Department works. Furthermore, you can take a look at the different sections in order to learn the various available deductions. This will help you make smarter investments and gain tax savings.