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

The most predominant direct tax in India is income tax, which is governed by the Income Tax Act, 1961. Income is taxed based on progressive taxation, wherein the tax rate increases as the income increases. The act contains provisions related to income calculations, exemptions, deductions, and tax rates.

Key Highlights

• The new Income Tax Act, 2025, will come into effect from 1st April 2026, eliminating redundant provisions and aligning the law with current technological and economic developments.
• Tax is primarily computed based on applicable slab rates, with the option to choose between the old and new tax regimes.
• The Act provides various deductions and exemptions, applicable separately under the old and new tax regimes.

What is the Income Tax Act 1961?

The Income Tax Act 1961 governs the levy, collection, and administration of direct taxes in India. It applies to all persons earning income in India, regardless of whether they are citizens or not. Under this law, taxpayers are obligated to pay direct taxes at prescribed rates. 

• This act is applicable to the whole of India
• Present day, it contains more than 700 sections, 23 chapters, and 14 schedules
• Every year, the parliament passes Annual Finance Act, thereby amending the act to cater the requirements of changing economic situation.

Income Tax Bare Act - PDF Download

Download Income Tax Act, as amended by the Finance Act 2025.

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. These provisions can be broady classified on the following grounds.

While the above may not be a exhaustive classification of all the provisions, it covers a significant part of the act.

Components of Indian Income Tax Law

• The Income Tax Act - covers the assessee, income assessed, taxation, deductions and exepmtions.
• Annual Finance Act - divided to four parts, various changes are enacted to the income tax law thorough the Annual Finance Act.
• Income tax rules - Rules help in implementation of provisions and purpose of the act
• Circulars and notifications - issued periodically to address the ambiguities and difficulties the taxpayers and the department face. Circulars are binding on the department, and the assessee can use it to his favour. Notifications are binding on both the department and the taxpayer.   
• Judicial pronouncements - Previous judgements issued by the courts and tribunals can be used to interpret the law when the act is silent or ambiguous in certain parts.

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:

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:

Advantages of Income Tax Act 1961

The main advantages 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.   

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.