Before one can embark on a study of the law of income-tax, it is absolutely vital to understand some of the expressions found under the Income-tax Act, 1961. The purpose of this Chapter is to enable the students to comprehend basic expressions. Therefore, all such basic terms are explained and suitable illustrations are provided to define their meaning and scope.

After going through this lesson you should be able to understand:

• Importance and History of Income Tax in India
• Meaning of Person and Assessee
• Definitions of various Terms used in Income Tax
• What is regarded as ‘Income’ under the Income-tax Act
• What is ‘Gross Total Income’
• Concept of Assessment Year and Previous Year
• How to charge tax on income
• Income-tax rates

IMPORATANCE

The Taxation Structure of the country can play a very important role in the working of our economy. Some time back the emphasis was on higher rates of Tax and more incentives. But recently, the emphasis has shifted to Decrease in rates of taxes and withdrawal of incentives. While designing the Taxation structure it has to be seen that it is in conformity with our economic and social objectives. It should not impair the incentives to personal savings and investment flow and on the other hand it should not result into decrease in revenue for the State.

In our present day economy structure Income Tax plays a vital role as a source of Revenue and a measure of removal economic disparity. Our Taxation structure provides for Two types of Taxes --- DIRECT and INDIRECT ; Income Tax , Wealth Tax and Gift Tax are Direct Taxes whereas Sales Tax and Excise Duties are Indirect Taxes.

HISTORY

The Income Tax was introduced in India for the first time in 1860 by British rulers following the mutiny of 1857. The period between 1860 and 1886 was a period of experiments in the context of Income Tax. This period ended in 1886 when first Income Tax Act came into existence. The pattern laid down in it for levying of Tax continues to operate even to-day though in some changed form. In 1918, another Act- Income Tax Act, 1918 was passed but it was short lived and was replaced by Income Tax Act, 1922 and it remained in existence and operation till 31st. March, 1961.

PRESENT ACT

On the recommendation of Law Commission & Direct Taxes Enquiry Committee and in consultation with Law Ministry a Bill was framed. This Bill was referred to a select committee and finally passed in Sept. 1961. This Act came into force from 1st.April 1962 in whole of the country. Income Tax Act, 1961 is a comprehensive Act and consists of 298 Sections. Sub-Sections running into thousands Schedules, Rules, Sub-Rules, etc. and is supported by other Acts and Rules. This Act has been amended by several amending Acts since 1961. The Annual Finance Bills presented to Parliament along with Budget make far-reaching amendments in this Act every year.

“… A Business who stays aloof of tax matters cannot remain competitive. Tax laws are an economic reality in the Business world. A Tax Dollar is just as real one derived from other source.”

Tax Management is now an integral part of business management. It involves not only due compliance of law in timely and regular manner, but also arranging the affairs in such a manner that it reduces the tax liability burden. Specifics are :

• Filling of Return
• Maintenance of Accounts
• Getting the Accounts Audited.
• Complying with the notices of Income Tax Department.
• Payment of Advance Tax
• Timely deduction of Tax at Source and its payment.