The Income Tax Act, 1961 is the charging statute of
income tax in India. It provides for the levy, administration, collection, and recovery of income tax. The
Government of India
The Government of India (ISO 15919, ISO: Bhārata Sarakāra, legally the Union Government or Union of India or the Central Government) is the national authority of the Republic of India, located in South Asia, consisting of States and union t ...
brought a draft statute called the
Direct Taxes Code intended to replace the Income Tax Act, 1961 and the
Wealth Tax Act, 1957.
New Income Tax Bill 2025 was presented by the government in the Lok Sabha (Lower house of India) on 13.02.2025, If the bill is approved and passed then it will become an act of law and will come into force with effect from 01.04.2026.
Amendments
The Government of India presents the finance bill (budget) every year in the month of February. The finance budget brings various amendments in the Income Tax Act, 1961 including tax slabs rates. The amendments are generally applicable to the following financial year beginning from 1 April unless otherwise specified. Such amendments become part of th
Income Tax Actafter receiving approval of the President of India.
The partial budget presented for a non-full financial year, typically during a General Election year in India, is called a "Vote on Account." It is introduced to ensure the continuation of essential government expenditures required for the smooth functioning of the country. A full-fledged budget is presented once a new government is formed.
Scope of total income
The scope of total income is contingent on the category of the
taxpayer and their residential status in India. For example, a person resident in India is liable to pay income tax in India on his total world income. On the other hand, a person non-resident in India is liable to pay tax in India only on his Indian income. Under the Income Tax Act, there are five heads of income: salary, house property, business or profession, capital gains, and other sources. Total income consists of income computed under these heads. The tax on total income is computed as per the tax rates specified for the year during which the income is earned.
Objectives of the Income Tax Act 1961
The primary objectives of the Income Tax Act 1961 are:
# Revenue Generation: To generate revenue for the
government
A government is the system or group of people governing an organized community, generally a State (polity), state.
In the case of its broad associative definition, government normally consists of legislature, executive (government), execu ...
to fund
public services
A public service or service of general (economic) interest is any service (economics), service intended to address the needs of aggregate members of a community, whether provided directly by a public sector agency, via public financing availab ...
and
infrastructure
Infrastructure is the set of facilities and systems that serve a country, city, or other area, and encompasses the services and facilities necessary for its economy, households and firms to function. Infrastructure is composed of public and pri ...
development.
# Equitable Distribution of Wealth: To ensure a fair
distribution of wealth
The distribution of wealth is a comparison of the wealth of various members or groups in a society. It shows one aspect of economic inequality or heterogeneity in economics, economic heterogeneity.
The distribution of wealth differs from the i ...
by imposing higher
taxes
A tax is a mandatory financial charge or levy imposed on an individual or legal entity by a governmental organization to support government spending and public expenditures collectively or to regulate and reduce negative externalities. Tax co ...
on higher income groups.
# Economic Regulation: To regulate
economic activities and promote investments in specific sectors through tax
incentives and exemptions.
# Compliance and Enforcement: To establish a robust framework for the assessment, collection, and enforcement of income tax.
Simplification
The Union Government established a panel, led by Arbind Modi, to overhaul and simplify the income tax laws. On 22 November 2017, the government formed a task force to draft a new direct tax law, replacing the existing Income Tax Act, which has been in effect since 1961. Arbind Modi, a member of the
Central Board of Direct Taxes (CBDT), will lead the six-member panel, with
Chief Economic Advisor Arvind Subramanian serving as a permanent special invitee.
Notable cases
*
Cairn Energy and Government of India dispute
Vodafone International Holdings B.V. vs. Union of India & Anr.
Notes
External links
{{DEFAULTSORT:Income-tax Act, 1961, The
Acts of the Parliament of India 1961
1961 in Indian law
Income tax in India
Indian tax legislation
Indian legislation
History of taxation in India