Income tax is a direct tax imposed by the Government of India on the income earned by individuals and entities (like companies, firms, etc.) during a financial year. It is a legal obligation, and the collected tax is used by the government for public welfare, infrastructure, defense, education, and other national needs. Governing Law: Income tax in India is governed by the Income-tax Act, 1961, and is administered by the Central Board of Direct Taxes (CBDT), under the Ministry of Finance. This law is still in force and has not been replaced by the new criminal laws like BNS, BNSS, or BSA, since it deals with taxation, not criminal offences. Who Has to Pay Income Tax? Income tax is levied on every person, which includes: Individuals Hindu Undivided Families (HUF) Partnership firms (including LLPs) Companies (domestic and foreign) Associations of Persons (AOP) Bodies of Individuals (BOI) Local authorities Types of Income Tax: 1. Personal Income Tax Paid by individuals based on their annual income. 2. Corporate Income Tax Paid by companies on their profits. Sources of Income Taxed: Under Indian law, income is classified into 5 heads: 1. Income from Salary – wages, pensions, bonuses, etc. 2. Income from House Property – rent earned. 3. Profits and Gains from Business or Profession 4. Capital Gains – profit from sale of capital assets like property, shares, etc. 5. Income from Other Sources – interest, dividends, gifts, etc. Income Tax Slabs (for Individuals): Tax is calculated based on income slabs. Different slabs apply depending on: Age (normal, senior citizens, super senior citizens) Choice between old regime (with deductions) and new regime (lower rates, fewer deductions) (Exact rates are updated yearly in the Finance Act, usually in the Budget.) Key Terms: Assessment Year (AY): The year in which income is assessed and taxed (e.g., 2025–26). Previous Year (PY): The year in which income is earned (e.g., 2024–25). PAN (Permanent Account Number): Mandatory for filing income tax. Return of Income (ITR): A form filed annually to report income and taxes. Filing Income Tax Returns (ITR): Individuals and entities must file ITRs every year (usually by 31st July for individuals). Filing is mandatory if income exceeds the basic exemption limit (varies by age and regime). Filing helps in claiming refunds, avoiding penalties, and maintaining financial/legal compliance. Penalties for Non-Compliance: Failure to file returns, concealment of income, or evasion of tax can lead to: Penalties Interest on unpaid tax Prosecution, including imprisonment, in serious cases (handled under the Income-tax Act, not BNS) Why Is Income Tax Important? Funds public services and welfare schemes Maintains economic stability Encourages financial accountability Supports nation-building

Dear Client, Income tax which is a direct tax that the government puts on the income and profits which individuals and entities earn. In other words what you put into the government in terms of your income as a member of the public or a business. This income is a large component of what the government uses to fund public services and programs which include: Infrastructural projects (eg, roads, bridges, public transport). Healthcare and education systems National defense and law enforcement Social welfare programs Key Elements of Income Tax Taxable Income: This is what we tax, which may not be your total income. It’s what is left over after we take out eligible expenses, deductions and exemptions. Taxable income comes from many sources which include:. Salary and wages Profits from a business or profession Rental income from property Returns from sale of assets (e.g. property, stocks). Income from various other sources (e.g. interest, dividends, lottery winnings). Tax Rate Structure: In what tax bracket your income falls into is determined by a tax rate. In many countries we see a progressive tax system which also applies in case of India; as income increases tax rate goes up. Also this is usually in “slabs” which is a structure where different ranges of income are put into separate tax rates. Deductions and Exemptions: To that end governments put in place a variety of deductions and breaks. These may include which items of income which are brought into the tax net and which ones are not. For example a tax break for health insurance premiums which in turn means that that item of expense is not included in your total income which is taxed. Income Tax Return (ITR): This is a required tax form which individuals and entities must present to the tax department to report their income and determine tax liability for a given financial year. Who Needs to Pay Income Tax? In most cases any person or entity which has an income over a certain basic exemption threshold is required to pay income tax. This includes:. Individuals (salaried employees, self-employed professionals) Businesses and corporations Hindu Undivided Families (HUFs) Firms and other associations The exact rules, rates and exemptions are set out in the Income Tax Act of each country and are subject to change via annual budget reports and amendments. For any specific questions regarding your personal tax situation, please do not hesitate to contact us. Thank you!