What are the Famous Income Tax Provisions?

The system of direct taxation, as it is known now, has been in India in some form or another from ancient times. So, let us go back a little into the past and find out how all of this started, and how it came about today. Don’t you want to know why Indians are paying taxes, and from where everything took off. It took us years to come with these systems, but how it has come, here it is.

History on Income Taxes in India

Sir James Wilson introduced the Tax for the first time in 1860. On 7 April 1860, India’s first “Union Budget” was introduced by pre-independence finance minister James Wilson. The Indian Income Tax Act of 1860 was enacted to compensate the government for losses incurred as a result of the 1857 military mutiny. Income was taxed individually in four schedules:

1) Income from landed property

2) Income from professions and trades

3) Income from Securities

4) Income from Salaries and pensions

This legislation was periodically superseded by a variety of licensing taxes. The Separate Income Tax Act was passed in 1886. This statute stayed in effect till, with a few modifications here and there. The Indian Income Tax Act of 1886 split income into four schedules that were taxed separately:

1) Salaries, pensions, or gratuities

2) Net profits of companies

3) Interests on the securities of the Government of India

4) Other sources of income

In 1918, a new income tax was enacted. The Indian Income Tax Act of 1918 abolished the Indian Income Tax Act of 1886 and made a number of significant modifications.

1922- It was superseded once more by a new statute approved in 1922. The Income-tax Department’s organizational history begins in 1922. For the first time, the Income-tax Act of 1922 assigned particular nomenclature to separate Income-tax agencies. The Income Tax Act of 1922 was still in effect until 1961.

1961– Following discussions with the Ministry of Law, the Income Tax Act of 1961 was enacted. The Income Tax Act of 1961 went into effect on April 1, 1962. It is applicable across India.

Since 1962, the Union Budget, which also includes the Finance Bill, has made many far-reaching modifications to the Income Tax Act. It becomes the Finance Act once it is enacted by both houses of Parliament and obtains the President of India’s ascent.

Currently, there are five types of income:

1) Income from Salary

2) Income from House Property

3) Income from Profits and Gains of Business or Profession

4) Income from Capital Gains

5) Income from Other Sources

What is Provision for Income Tax?

A provision for income taxes is the amount that a company or individual taxpayer anticipates paying in income taxes for the current fiscal year. This provision is calculated by adjusting the firm’s reported net income for a range of permanent and temporary variances. The provision for income taxes is calculated by multiplying the adjusted net income number by the appropriate income tax rate.

This provision can be significantly influenced by the amount of tax planning that a person or organization does to delay or reduce income tax liabilities. As a result, the proportional amount of this provision varies greatly from person to taxpayer, depending on their tax planning ability.

Here are Some Important Provisions

1. Section 80C – Tax deduction on investments

Section 80C of the Income Tax Act allows for a tax deduction for investments in specific instruments. Tax Saving Mutual Funds and Tax Saving Fixed Deposits are two of the most popular. Tax Saving Mutual Funds are equity-oriented, which means that at least 655 of their corpus must be invested in stocks. Equity Linked Savings Schemes (ELSS) have a three-year lock-in period and must have at least 80% of their capital invested in stocks to be eligible for tax deductions of up to Rs. 1.5 lakhs under Section 80C of the Income Tax Act.

2. Section 80CCC – Tax deduction for contribution to pension funds

Section 80CCC provides income tax deductions to pension funds under Chapter VI-A from the taxpayer’s gross total income for that fiscal year in order to encourage taxpayers to begin investing in pension funds. This allows for a tax deduction for any amount paid or placed in any insurer’s annuity plan (LIC or otherwise). Furthermore, the maximum deduction available under Section 80CCC is Rs. 1.5 lakhs.

3. Section 80TTA – Tax deduction for interest on savings account

Individuals can claim deductions of up to Rs. 10,000 per year on interest received on savings account deposits maintained in banks, post offices, or cooperative societies under Section 80TTA of the Income Tax Act (Chapter VI-A).

Types of Taxes

Taxes are classified into two broad categories, which are further subdivided into subcategories. Direct tax and indirect tax are the two primary types. There are also smaller cess taxes divided into subcategories. There are many statutes within the Income Tax Act that control these taxes.

– Direct Tax

The term direct tax refers to taxes that must be paid directly to the government by an individual or legal organization. The Central Board of Direct Taxes is in charge of direct taxes (CBDT). Direct taxes are not transferable to another person or legal organization.

– Indirect Tax

Indirect taxes are those placed on services and products. The vendor of the service or product collects indirect taxes. The tax is included in the price of the goods and services. It raises the cost of the goods or services. The government presently levies only one indirect tax. This is referred to as GST, or the Goods and Services Tax.

Apart from these taxes, there are other taxes like Property tax, Entertainment tax, Professional tax, and more.

Conclusion

It is usually a good idea to have a basic understanding of the income tax laws and actions that you must follow. If you find it intriguing, you may learn more about these topics by reading about them in-depth, but here you can find some of the most famous provisions on income tax.