Income Tax is a direct tax levied by the government on an individual’s or entity’s income. It is governed by the Income Tax Act, 1961 and administered by the Central Board of Direct Taxes (CBDT) in India.
Who is Liable to Pay Income Tax?
- Individuals (Salaried & Self-Employed)
- Hindu Undivided Families (HUFs)
- Partnership Firms & LLPs
- Companies (Private & Public Limited)
- Trusts, Associations, and Other Entities
Types of Income Tax
1. Direct Tax
⇒ Levied directly on an individual’s or company’s income.
⇒ Paid annually based on income slabs.
2. Indirect Tax
⇒ Levied indirectly on goods and services (e.g., GST).
⇒ Paid at the time of purchase of goods/services.
Sources of Taxable Income (As per the Income Tax Act, 1961)
Income is classified into five heads:
Heads of Income
⇒ Income from Salary(Eg.Salaries, Allowances, Perks, Bonuses)
⇒ Income from House Property (Eg.Rental income, deemed rental value)
⇒ Profits & Gains from Business/Profession(Eg.Business profits, self-employed income)
⇒ Capital Gains(Eg.Sale of stocks, real estate, mutual funds)
⇒Income from Other Sources(Eg.Interest, dividends, lottery winnings)