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COMPONENTS OF INCOME TAX LAW

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Income-tax Act, 1961

The levy of income-tax in India is governed by the Income-tax Act, 1961.

• It came into force on 1st April, 1962.

• It contains 298 sections and XIV schedules.

• It undergoes change every year with additions and deletions brought out by the Annual Finance Act passed by Parliament.

• In pursuance of the power given by the Income-tax Act, 1961 rules have been framed to facilitate proper administration of the Income-tax Act, 1961.

The Finance Act

  • Every year, the Finance Minister of the Government of India introduces the Finance Bill in the Parliament’s Budget Session.
  • When the Finance Bill is passed by both the houses of the Parliament and gets the assent of the President, it becomes the Finance Act.
  • Amendments are made every year to the Income-tax Act, 1961 and other tax laws by the Finance Act.
  • The First Schedule to the Finance Act contains four parts which specify the rates of tax –

 Part I of the First Schedule to the Finance Act specifies the rates of tax applicable for the current Assessment Year.

 Part II specifies the rates at which tax is deductible at source for the current Financial Year.

 Part III gives the rates for calculating income-tax for deducting tax from income chargeable under the head “Salaries” and computation of advance tax.

 Part IV gives the rules for computing net agricultural income.

Income-tax Rules, 1962

The administration of direct taxes is looked after by the Central Board of Direct Taxes (CBDT).

• The CBDT is empowered to make rules for carrying out the purposes of the Act.

• For the proper administration of the Income-tax Act, 1961, the CBDT frames rules from time to time. These rules are collectively called Income-tax Rules, 1962.

• It is important to keep in mind that along with the Income-tax Act, 1961, these rules should also be studied

Circulars and Notifications

Circulars

• Circulars are issued by the CBDT from time to time to deal with certain specific problems and to clarify doubts regarding the scope and meaning of certain provisions of the Act.

• Circulars are issued for the guidance of the officers and/or assessees.

• The department is bound by the circulars. While such circulars are not binding on the assessees, they can take advantage of beneficial circulars.

 

Notifications

• Notifications are issued by the Central Government to give effect to the provisions of the Act.

For example, under section 10(15)(iv)(h), interest payable by any public sector company in respect of such bonds or debentures and subject to such conditions as the Central Government may, by notification in the Official Gazette, specify in this behalf would be exempt. Therefore, the bonds and debentures, interest on which would qualify for exemption under this section are specified by the Central Government through Notifications.

• The CBDT is also empowered to make and amend rules for the purposes of the Act by issue of notifications.

Case Laws

  • The study of case laws is an important and unavoidable part of the study of Income-tax law.
  • It is not possible for Parliament to conceive and provide for all possible issues that may arise in the implementation of any Act.
  • Hence the judiciary will hear the disputes between the assessees and the department and give decisions on various issues.
  • The Supreme Court is the Apex Court of the Country and the law laid down by the Supreme Court is the law of the land.
  • The decisions given by various High Courts will apply in the respective states in which such High Courts have jurisdiction.

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