INCOME TAX ACT, 1961: A BRIEF ANALYSIS
Author : Yashraj Bais
The taxes since ancient times are a significant source of income for the Government, which is also a concrete medium for ensuring public welfare for the Government.
Tax may be classified as direct tax and indirect tax, however after implementation of Goods and Services Tax Act, 2017 all the indirect taxes are almost abolished except few exceptions, whereas the Income Tax is a direct tax in nature and therefore is applicable on all the Indians and is regulated by the statutory provisions of Income Tax Act, 1961. It is pertinent to mention here that according to Kelson’s Pure Theory of Law in Jurisprudence every statute or act derives it’s utility from one ultimate source which is known as “Grundnorm” and in our case it is the Constitution of India. Therefore all the Acts and Statutes in India derives it’s ultimate authority from the Constitution of India, as it is explicitly written in Article 265 that no tax shall be levied or collected except by a authority established by law. Similarly in the Seventh Schedule of our Indian Constitution in List I and List II the specific taxes are defined along-with the authorities to who will collect it, List I is for the Central Government, whereas List II is for the State Government. We can understand and analyze the importance of “Tax System”, from the ancient writings of Arthashastra by Kautilya, writings of Saint Tulsidas, Manusmirti, etc.
Some important Definitions under Income Tax Act, 1961:
- Income Tax: According to the Act, the Income Tax is a tax that is collected by the Central Government for each financial year levied on total taxable income of an assesses assessment year.
- Assessment Year: According to the Act, the assessment year is a year commencing the period of 12 months i.e. from April 1 to March 31of the upcoming year. In this year the income of the financial year is assessed. Like if the Assessment Year is 2020-21 than the Financial Year will be 2019-20 for which the income of the assesse will be assessed.
- Person: According to Section 2(31) of the Act, a person for the purpose of imposition of the income tax would be any of the following- An Individual, A Hindu Un-divided Family, A Company, A Firm, A Local Authority, and every artificial or juridical person who is not included in all these categories.
- Assesse: According to Section 2(7) of the Act, an assesse is a person who is liable to pay taxes under any provisions of the Income Tax Act, 1961 which may be a person who has violated the provisions of the act, or must have deemed as an assesse under the Act.
- Assessment: The assessment is the procedure been conducted by the Income Tax Authorities for verifying the details of the income lodged by the assesse in the Income Tax Return, which includes calculation of the income tax payable by the assesse and imposition of further tax liabilities on him, if required.
- Resident of India: According to the Income Tax Act, 1961 if an assesse spends or resides at-least 182 days i.e. 6 months and two days in India, he will be treated as an resident of India for that particular financial year and his whole income earned will be taxable under the Act.
- Non-Resident Indian: According to the Act, if one does not resides in India for minimum 182 days or lives abroad for the whole 365 days in a Foreign Country will be treated as Non-Resident Indian for that particular financial year, and his income which is earned in India will only be taxable under the Act.
- Income: According to Section 2 (24) of the Act, any benefit which can be measured In terms of money, any subsidy or relief or re-imbursement, any prize, any subsidy, any capital gains from the sale proceeds of the property or any illegal monetary benefit will be treated as income for the purpose of imposition of Income Tax under the Act.
Need for Amendment in the Income Tax Act, 1961:
India which is world’s fifth largest economy according to the Report of IMF, 2018 needs a overall amendment and change in the whole tax structure. Today, even the essential commodities are over-taxed in our nation which ultimately puts the burden on the pockets of poor and middle class families giving rise to in-equality and dis-satisfaction in the society. It is a very shocking fact to know that even the water and food grains which is the basis of human existence on this earth are taxed in India instead diamonds and luxury items must be heavily taxed in order to maintain the parity, some of the Life-Saving Drugs and Medicines are heavily taxed in our Nation, which is a great reason to worry. There is an acute need for imposition of progressive taxation system in our Nation which currently is regressive taxation system, because of which poor are getting more poor and richer are getting more richer. Like for example, according to the Union Budget, 2020 the new income tax slabs are that the income earner from Rs. 2,50,000/- to Rs. 5,00,000/- has to pay only 5% of tax on the total income subject to several rebates and refunds, but if even your income reaches Rs. 5,00,001/- that you have to mandatorily pay Rs. 12,500/- + 10% of the total income exceeding Rs. 5,00,000/-, which puts un-necessary burden on the poor or middle class individuals rather than the elite class of the country who can pay these taxes very easily.
Tax is the basis of the Nation’s existence, if it is collected and used wisely it results in prosperity of the country, but on the other hand if mis-used and collected without any proper planning can lead to destruction. There is no issues in collecting taxes but the public should feel the development and prosperity in the forms of IIM, IIT’s, Government Schools, Government Hospitals ,etc.