Before explaining the meaning of income tax, let us first understand the meaning of tax. In simple terms tax can be defined as a compulsory payment made to the Central Government from the general public. It is a financial charge imposed on individuals or legal entities by the Government in pursuant to its legislative authority. It is to be noted that tax is not a voluntary payment or donation, but it is an enforced contribution.
Over the years, a number of taxes have been imposed by various Governments covering different aspects such as income, wealth, sales, expenditure, services provided, production, import, export etc. The proceeds from taxes constitute a major source of revenue to the government that spends the collected amount for the common benefits of the general public.
INDIAN TAXATION SYSTEM'S STRUCTURE
The income tax was introduced in India for the first time in 1860 by British rulers following the typhoon of 1857. Because of the wide application of a large number of people and other business entities, the Indian taxation system is considered one of the world's largest taxation systems. It is a well structured system derived from the Indian constitution. As we know that India has a federal system of Government with a clear demarcation of power between the Central Government and the State Governments.
INCOME TAX - An overview
Income tax is an important type of tax which is found practically in almost all the countries of the world. It is generally described as a tax on income, gains or profits earned by a person such as individuals and other entities.
FEATURES OF INCOME TAX IN INDIA
Now let us discuss some of the features of income tax in India:
1. Tax on Person
It is a tax on income earned by a person. The term person has a wider coverage. The term 'person' has been defined under the Income tax Act. It includes individual, HUF, Firm, Company, local authority, Association of person or body of Individual or any other artificial juridical persons. The persons who are covered under Income tax Act are called 'assessees'.
2. Tax on Income
It is a tax on income. The Income tax Act has defined the term income and it includes salary income, house property income, business/profession income, capital gains and other sources income. However, there are certain incomes which are specifically exempt from income tax.
3. Levied as per the Constitution
Income tax is levied in India by virtue of entry 82 of I (Union List) of Seventh Schedule to the Article 246 of the Constitution of India which authorizes the Central Government to impose tax on income other than agricultural income".
4. Levied by Central Government
Income tax is charged by the Central Government on all income other than agricultural income. However, the power to charge income tax on agricultural income has been vested with the State Government as per Entry 46 of List II, i.e., State List.
5. Direct Tax
Income tax is a direct tax. This means that the liability to deposit and ultimate burden are on the same person. The person earning income is liable to pay income tax out of his own pocket and cannot pass on the burden of tax so paid on the persons from whom the income has been earned.
6. Annual Tax
Income tax is an annual tax because it is the income of a particular year which is chargeable to tax.
7. Income of 'Previous Year' is assessable in 'Assessment Year'
Income earned during a particular financial year is assessed to tax in the immediately following financial year. The year of earning income is called 'Previous Year' and the year in which assessment of income is done is called 'Assessment Year'. The return of previous year's income is filed in the relevant assessment year.
8. Charged at prescribed rates
Income tax is charged at prescribed rates. However the rates of income tax differ for different incomes and for different persons. While tax rates for normal incomes are prescribed by the annual Finance Act, tax rates for certain special incomes have been prescribed under Income Tax Act itself. For instance, the following tax rates have been prescribed under Income Tax Act -Tax on lottery income @30% (Section 115BB).
9. Administered by the Central Government
Income tax is administered by the Central Government (Ministry of Finance) with the help of 'Income tax department' with branches throughout the country. The Central Government has constituted the Central Board of Direct Taxes' (CBDT) which exercises overall control over the Income tax department by issuing guidelines for various related matters.
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