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Components of Income Tax Law in India

The main elements of the Income tax Law are Income Tax Act 1961, Income Tax Rules 1962, Annual Finance Act, circulars & notifications and case laws.

Income Tax Law in India mainly comprises of Income Tax Act 1961, Income Tax Rules 1962, Annual Finance Act, Judicial, and Circulars & Clarification. The Ministry of Finance is the governing authority of Income Tax Law. The Government earns its core revenue by levying taxes. This income is utilised for the welfare of the economy, like defence, education, hospitals, etc. The charges can be classified into Direct and Indirect Taxes. The Income tax law helps the Government in proper implementation and collection of the taxes. Components of Income Tax law are:

  1. The Income Tax Act, 1961: The Indian Tax system is administered by the Income Tax Act, 1961. It defines the levy, collection and recovery of Income Tax. It comprises of 298 sections and XIV schedules, which changes according to the additions and deletions proposed by the Annual Finance Act.
  2. Annual Finance Act: Every year, a budget is presented in the Parliament of India by the Finance Minister. This budget contains the proposed policies related to commercial areas and taxation. A finance bill is introduced in the Parliament containing all the proposals. This bill is converted into the Finance Act, once approved by the Parliament and by the President of India.
  3. Income Tax Rules, 1962: The Central Board of Direct Taxes (CBDT) administers efficient implementation and working of the direct taxes in the country. The CBDT frames standard rules for efficient achievement of the purpose of the Income Tax Act. These rules are referred as Income Tax Rules, 1962.
  4. Judicial (Case Laws): For a complete understanding of the Income Tax Law, it is very crucial to study the judicial laws. Judicial laws provide decisions for those issues that may come up at the time of implementation of the Income Tax Act. The Supreme Court is the first court in the country and the decisions made by it are followed.
  5. Circulars & Notifications: The CBDT issues circulars for clarifying any doubts related to the provision of the Act. The primary purpose of these circulars is to provide clarity to the assessee and the officers. It bounds the department, whereas the assessee can take advantage of the circulars as they are not bound by them.