Income Tax Act Overview

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Questions and Answers

What is the primary purpose of the Finance Act?

To oversee the administration of tax laws.

To collect income tax from individuals.

To amend the Income Tax Act and other tax laws. (correct)

To introduce new tax laws.

Which entity is responsible for making rules under the Income Tax Act?

The Finance Minister.

The President of India.

The Parliament of India.

The Central Board of Direct Taxes (CBDT). (correct)

What is included in the Income Tax Act as mentioned in the content?

298 sections and XIV schedules. (correct)

Only Income Tax Rules.

Guidance documents for assessees.

Circulars and notifications.

Who introduces the Finance Bill in the Parliament?

The Finance Minister. Signup and view all the answers

When did the Income Tax Act come into force?

1st April, 1962. Signup and view all the answers

What type of documents are issued by the CBDT to clarify provisions of the Income Tax Act?

Circulars and notifications. Signup and view all the answers

Who is subject to pay Income Tax according to the content?

Every person who earns an income, subject to conditions. Signup and view all the answers

Which of the following best describes the structure of the Income Tax Law?

A combination of the Income Tax Act, Finance Act, and rules. Signup and view all the answers

What is the rate of surcharge for an individual with total income exceeding 5 Crores?

37% Signup and view all the answers

For an AOP with net taxable income (NTI) above 1 Crore but not exceeding 2 Crores, what is the applicable surcharge rate?

15% Signup and view all the answers

In the context of surcharge applicability, which type of income is not subjected to the rate exceeding 15%?

Dividend income Signup and view all the answers

When calculating tax liability, what is the total income threshold above which a 15% surcharge is applied for individuals?

2 Crores Signup and view all the answers

For net taxable income between 50 lakhs and 1 Crore for AOP, what is the surcharge applicable?

10% Signup and view all the answers

How much is the surcharge rate for an AOP with NTI exceeding 2 Crores but not exceeding 5 Crores?

25% Signup and view all the answers

What total income would trigger a 37% surcharge for an individual taxpayer?

5 Crores Signup and view all the answers

Which type of income is included in the scenario for surcharge calculation under section 111A?

Short-term capital gains Signup and view all the answers

What is the nature of the Goods and Services Tax in relation to consumers' ability to pay?

Regressive in nature Signup and view all the answers

What power does Article 246 of the Constitution of India grant regarding taxation?

Both State and Union Governments can levy taxes Signup and view all the answers

Which list grants the Central Government the exclusive power to make laws regarding income tax?

Union List Signup and view all the answers

Who introduced income tax in India and in which year?

James Wilson in 1860 Signup and view all the answers

What historical payment forms were used for taxation before the introduction of income tax?

Gold coins, cattle, grains, and raw materials Signup and view all the answers

Which act governs the levy of income tax in India?

Income Tax Act 1961 Signup and view all the answers

In which of the following lists do both the Central and State Governments have the power to make tax laws?

Concurrent List Signup and view all the answers

What type of tax is classified as direct tax?

Income Tax Signup and view all the answers

Which of the following income slabs for senior individuals is correct under Option II - 115BACC?

6 L to 9 L - 10% Signup and view all the answers

What is the rate of tax applicable for income above ₹10 lakh in Option I?

30% Signup and view all the answers

For a person with a net taxable income of ₹5 lakh under Option II, what would be the rebate allowed under section 87A?

₹25,000 Signup and view all the answers

Which surcharge percentage is applicable for net taxable income between ₹1 crore and ₹2 crore in both options?

15% Signup and view all the answers

Under which option is there an Alternate Minimum Tax (AMT) applicable?

Option I Signup and view all the answers

What is the maximum rebate allowed for income under ₹5 lakh in Option I?

₹12,500 Signup and view all the answers

Which rate is charged under the Health and Education Cess (HEC) for both tax regimes?

4% Signup and view all the answers

In the context of surcharges, what is the surcharge percentage for incomes exceeding ₹5 crore in Option I?

37% Signup and view all the answers

What is included in the definition of a 'person' for the purpose of paying income tax?

Individuals, HUFs, companies, firms, local authorities and artificial juridical persons Signup and view all the answers

Which of the following is NOT a type of entity that is liable to pay income tax?

An organization formed for charitable purposes Signup and view all the answers

What is the primary criteria for determining who is liable to pay income tax?

Any person who earns income, subject to certain conditions Signup and view all the answers

Which of the following best describes the term 'Individual' under the income tax definition?

A natural person including minors and persons of unsound mind Signup and view all the answers

How is a Hindu Undivided Family (HUF) treated under the income tax laws?

As a separate entity liable to pay income tax Signup and view all the answers

What is the purpose of a rebate under section 87A?

To reduce tax liability for certain income earners Signup and view all the answers

Which component is added to the tax liability after calculating the net taxable income?

Health and Education Cess Signup and view all the answers

What does the term 'Total Tax Liability' refer to in the computation of total income?

Final tax payable after rebates and surcharges Signup and view all the answers

What is the primary purpose of marginal relief in taxation?

To ensure that tax increase does not exceed income increase Signup and view all the answers

Which of the following sections deals with certain expenses of scientific research?

Section 35 Signup and view all the answers

In which scenario would marginal relief not be applicable?

When total income decreases Signup and view all the answers

What does Section 288A specify about rounding off total income?

Round off to nearest multiple of Rs. 10 Signup and view all the answers

Which of the following is NOT allowed when providing deductions mentioned in points 1 to 10?

Set off of losses from earlier years Signup and view all the answers

When does a resident individual qualify for a higher basic exemption limit of Rs. 300,000?

If their birthday is on 1st April, 2024 Signup and view all the answers

For which income level is Mr.A likely to see significant taxation adjustments under the concept of marginal relief?

5 crore Signup and view all the answers

Which of the following expenditures is related to skill development projects?

Section 35CCD Signup and view all the answers

Study Notes

Basic Concepts of Chapter 1

Tax is a contribution to the government from income, a product, or activity.
Two types exist: direct and indirect taxes.
Article 366(28) of the Indian Constitution defines taxation.
Taxes are a societal cost of living.
Government revenue is used for expenses such as defense, education, and infrastructure.

Different Types of Taxes

Direct Tax: Levied directly on the income of the person.
Indirect Tax: Levied on the price of goods or services.

Difference Between Direct and Indirect Taxes

Direct Tax: The person paying the tax directly to the government bears the incidence of the tax. It's progressive in nature, with higher tax rates for higher earners.
Indirect Tax: The person paying the tax collects it from the ultimate consumer. The incidence of the tax is shifted to another person. It's regressive in nature, implying all consumers bear the burden irrespective of their paying capacity.

Tax Levy in India

Article 246 of the Indian Constitution empowers the Union and State Governments to levy taxes.
Taxes are categorized under Union, State, and Concurrent lists.
This division outlines the taxing authority for different governmental levels.
Entry 82 of the Union List reserves the power to levy income tax for the Central government.
Taxes in India historically have been levied on individuals, farmers, traders, and other entities in the form of gold, cattle, grains, and raw materials.
The first income tax in India was introduced in 1860 by James Wilson, the then Finance Member of the British Government.
The Income-tax Act of 1961 governs the levy of income tax in India.

Components of Income Tax Law

Income Tax Act, 1961, governing income tax in India.
Sections and schedules of the act are updated yearly by the Finance Act.
Components include the Income Tax Act, Finance Act, Income Tax Rules, Circulars/Notifications, and Legal Decisions.
The levy of income tax is governed by the Income tax act, 1961
CBDT (Central Board of Direct Taxes) makes rules for the proper administration of the Act.

Circulars and Notifications

Circulars are issued to address issues and clarify doubts regarding the provisions of the Act.
Assessees may use these circulars for guidance but they are not legally binding.
Notifications are issued by the Central Government to clarify and give effect to provisions of the Act.

Cases of Law

Judiciary resolves disputes between assessees and the tax department through case laws.
These judgments establish legal precedents for future cases.
Supreme Court decisions are regarded as the law of the land.

Examples of Terms

Section 2: Defines terms in the Income Tax Act.
- Clause 1A of Section 2: Defines "agricultural income."
- Clause 1B of Section 2: Defines "amalgamation."
Section 10: Defines exemptions.
- Clause 1: Exempts agricultural income.
- Clause 2: Exempts income of members from HUF (Hindu Undivided Family).

Some Important Sections of the Act

Section 1: States the name and commencement of the Income-tax Act, pertaining to its applicability.
Section 4: Provides the rules for the imposition of income taxes as it serves as the charging or imposition section of the Act.
Discusses the criteria for the levy of income tax pertaining to Assessment years and rates.

Income Tax Computation

Gross Total Income, Net Taxable Income, tax deductions, rebates, Surcharge, and health and education cess lead to the calculation of total tax liability

Who Will Pay Income Tax?

Every person who earns income is subject to income tax.
An individual, a Hindu Undivided Family (HUF), a company, a firm, an Association of Persons (AOP), a Body of Individuals (BOI), a local authority, and every artificial juridical person (e.g., an idol or deity) may be liable.
Income from all sources is calculated for taxes, as defined in the Income-Tax Act, 1961.

Important Definitions

Previous year: The financial year preceding the assessment year.
Assessment year: The twelve-month period commencing 1st April in which the tax is levied.
Assessee: A person liable to pay tax for themself or on behalf of others.
Person: Inclusive of individuals, HUFs, companies, firms, AOPs, BOIs, local authorities, and artificial juridical persons as outlined in Section 2(31) of the Act.

Rates of Tax for Individuals/HUF/AOP/BOI/AJP

Separate tax rates for residents, those aged 60 and above, and those aged 80 and above.
Additional tax may exist.
Rebate provisions may exist.

Additional Tax Information

Surcharge, health, and education cess may apply, based on income thresholds.
Special provisions of surcharge; on income, dividend, and LTCG may be applicable based on thresholds..

Method of Accounting

Assessee can use either cash or mercantile system for bookkeeping, affecting how income and expenses are recorded.

Application and Diversion of Income

Application of income: Discharging obligations.
Diversion of income: Income redirected before reaching the assessee.

Concessional Tax Regime

Tax regime alternative to the default regime for individuals and HUFs.
Tax rates differ from the regular regime under specific threshold limits..

Tax Liability for Other Persons (Firms, Co-operative Societies)

Tax rates and calculation methods for different entities (firms, LLPs, local authorities, co-operative societies).

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Description

Test your knowledge on key aspects of the Income Tax Act and Finance Act. This quiz covers entities responsible for rule-making, tax liabilities, and surcharge rates. Perfect for students and professionals wanting to strengthen their understanding of income tax legislation.