Article by Muskan singh at lexcliq
Income Tax Laws of India and It’s Importance
The constitution of India under Article 265 states that – No tax shall be levied or collected except by authority of law. It is the most important source of revenue for the Indian government to operate, functions and it provides various goods and services for the citizens of the country. These goods and services includes mainly infrastructure, health services, education, police protection, research, national defense and security of the country, and so on.
This tax collection is basically used to fund public services and provide different facilities to public. It collects taxes ( i.e an amount of money ) on all forms of income, for example – wages, salaries, commissions, investments, and business earnings. In India, we have this slab system according to which a person is asked to pay the income taxes. It ranges from 5 percent to 30 percent. In India a max percentage of tax collection is upto 30 percent of a person’s total income which is collected by the government. For the financial year 2020 – 2021, The Finance Minister of India introduced new tax regime in Union Budget 2020 wherein there is an option for individuals and HUF (Hindu Undivided Family) to pay taxes at lower rates without claiming deductions under various sections.
Types of Income Tax –
Individual / personal income tax : Personal income tax is a type of income tax that is levied on an individual’s wages, salaries, and other types of income.
Buisness income tax : Business income taxes apply to corporations, partnerships, small businesses, and people who are self-employed.
State and local income tax : State income tax is imposed at a fixed or graduated rate on taxable income of individuals, corporations, and certain estates and trusts.
The Income Tax Act (ITA)
Incomw Tax Act was enacted in the year 1961. The Act states various provisions for imposition and collection, administration and recovery of the income tax. It focuses on the different rules and regulations that govern taxation in the country. It consists of 298 sections and 14 schedules. Basically it aims to consolidate and amend the rules related to taxation in the country.
“According to the Indian Income Tax Act, 1961, the parties that are liable to pay the income tax (provided their annual income falls into one of the income slabs as prescribed in the Act) are individuals, Hindu Undivided Families (HUFs), companies, firms, association of persons, body of individuals and local authority. Income tax is levied annually, at the end of every financial year (April – March).”
The Finance Act
A Finance Act is the fiscal legislation enacted by the Indian Parliament to give effect to the financial proposals of the Central Government. It is enacted once a year and contains provisions relating to income taxes, customs, excise, Central and Integrated GST and other cess, exemptions, and reliefs
Penalties and liabilities against failure in payment of income tax
To ensure that every taxpayer does not default (failures) in paying taxes or disclosing the information, there are certain penalties prescribed under Chapters XVII and XXI of Income-tax Act 1961, that includes various provisions for empowering an Income-tax Authority to levy penalty in any case of certain defaults. A penalty or a punishment is imposed on the taxpayer for being non-compliant and for not paying his taxes on time.
