This article provides a general overview of Indian income tax legislation that applies to the entire country. Here, you will find information about the elements of the bill, the types of tax, and liabilities.
The Income Tax Act of 1961 comprises the majority of Income Tax laws in India. Some key features are:
- Income tax is levied on the preceding year’s income at the rate specified by the Finance Act for the current year.
- Income tax is imposed on a person based on their previous year’s earnings.
- The taxpayer's responsibility is calculated based on his residence status in the prior year.
- Income tax liability occurs only when overall revenue in the financial year exceeds the threshold tax-free amount established by the Finance Act for that relevant year.
- Income tax rates are progressive, meaning the tax burden increases as income rises.
- It is mandatory to deduct taxes at the source and deposit them in the government’s treasury.
The Central Board of Direct Taxes (CBDT) is in charge of Direct Tax administration. It has the power to enact regulations to carry out the purposes of the Income Tax Act.
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What are the types of tax?
- Direct taxes are those charged immediately on the income received. Individuals and corporations are subject to direct taxes. The tax rate applied to Bonus / Commission is subject to an individual's current tax position and tax slab.
- Indirect taxes are those received on your behalf and remitted to the Indian government, placed on goods and services, such as Sales taxes, taxes placed on imported products, and Value Added Tax (VAT).
Who must pay taxes in India?
The tax regulations divide taxable people into three groups.
- A resident
- A resident who is not typically resident
- A Non-resident
Several ordeals may be used to ascertain a person’s residential status.
- A person is deemed to be a resident of India if he has lived in India for 182 days, not necessarily consecutively, in the previous year.
- A person is considered a resident if he has lived in India for 365 days or more in the preceding four years and 60 days in the previous year.
A resident who is not typically resident
An individual is not an ordinary resident if and only if the following conditions are met:
- He has not lived in India for nine years preceding that year.
- If the individual has not lived in India for 729 days or more in the past seven years.
- A Hindu undivided family whose manager has met the requirements above.
A Non-Resident is someone who does not meet any of the fundamental requirements. In India, the following individuals must pay income tax:
- Individuals who work for themselves;
- Individuals who earn a living;
- Hindu Undivided Family;
- People as a group;
- Persons’ Organization;
- Companies or corporate firms;
- Authorities at the local level.
2022 Amendment of the Income Tax Act
Every year, adjustments are made to the Income tax law delivered by the Union Budget. The Finance Bill 2022 passed the following:
Digital Asset Taxation, meaning new measures for income taxation from virtual digital assets, will take effect on April 1, 2023.
Return updated, a new provision that allows the taxpayer to file a revised return, allowing to declare additional income that may have been overlooked in the initial tax return. The amended return must be filed within two years of the end of the relevant assessment year.
Start-up Incentives (Section 80-IAC), Eligible start-ups formed before March 31, 2022, received a tax exemption for three consecutive years; this has now been extended by one year until March 31, 2023.
The disincentive of Tax Evasion.
Exemption of funds paid for Covid treatment or death caused by Covid-19.
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