INTRODUCTION AND IMPORTANT DEFINITIONS:

Income tax is a very important direct tax. It is an important and most significant source of revenue of the government. The government needs money to maintain law and order in the country; safeguard the security of the country from foreign powers and promote the welfare of the people.

Income tax, being a direct tax, is an important tool to achieve balanced socio-economic growth by providing concessions and incentives in income tax for various developmental purposes.

Who is liable to pay income tax:

Every person, whose taxable income for the previous financial year exceeds the minimum taxable limit is liable to pay income tax during the current financial year on the income of the previous financial year at the rates in force during the current financial year

✓ BRIEF HISTORY OF INCOME TAX IN INDIA:

(1) In India, this tax was introduced for the first time in 1860, by Sir James Wilson in order to meet the losses sustained by the Government on account of the Military Mutiny of 1857.

(2) In 1886, a separate Income Tax Act was passed. This Act remained in force upto 1917, with various amendments from time to time.

(3) In 1918, a new Income Tax Act was passed and again it was replaced by another new Act which was passed in 1922. This Act remained in force up to the assessment year 1961-62 with numerous amendments.

(4) Since 1962 several amendments of far-reaching nature have been made in the Income Tax Act by the Finance Act every

(5) As a matter of fact, the Income Tax Act, 1961, which came into force on 1st April, 1962, has been amended and re-amended widely. It has, therefore, become very complicated both for the administering authorities and the tax-payers.

Basis of Charge of Income tax:

     The following basic principles are the basis of charging income tax:

1. Income tax is an annual tax on income.

2. Income of previous year is taxable in the next following assessment year at the rate or rates applicable to that assessment year. However, there are certain exceptions to this rule.

3. Tax rates are fixed by the annual Finance Act.

4. Tax is charged on every person as defined in Section 2(31).

5. The tax is charged on the total income of every person computed in accordance with the provisions of this Act.

6. Income tax is to be deducted at the sources or paid in advance as provided under provisions of the Act.

The total income is computed on the basis of the residential status of the assessee. The income is classified into the following five heads:

1. Income from Salaries.

2. Income from House Property.

3. Profits of Business or Profession.

4. Capital Gains.

5. Income from other Sources.

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