Income tax in India

Central Revenue collections in 2007-08 (Source: Compiled from reports of Comptroller and Auditor General of India for relevant years)

Constitution of India → Schedule VII → Union List → Entry 82 has given power to the Central Government to levy a tax on any income other than agricultural income which is defined in Section 10(1) of the Income Tax Act, 1961. The Income Tax Law consists of The Income Tax Act 1961, Income Tax Rules 1962, Notifications and Circulars issued by Central Board of Direct Taxes (CBDT), Annual Finance Acts and Judicial pronouncements by the Supreme Court and High Courts.

The government imposes a tax on taxable income of all persons who are individuals, Hindu Undivided Families (HUFs), companies, firms, association of persons, body of individuals, local authority and any other artificial judicial person. Levy of tax is different on each person. Indian Income Tax Act, 1961 levies and governs income tax. The Indian Income Tax Department is administered by CBDT which is part of the Department of Revenue under the Ministry of Finance, Govt. of India. Income tax is a key source of funds that the government uses to fund its activities and serve the public.

The Income Tax Department is the biggest revenue mobilizer for the Government. The total tax revenues of the Central Government increased from ₹1,392.26 billion (US$21 billion) in 1997-98 to ₹5,889.09 billion (US$88 billion) in 2007-08.

Government of India allowed the people to declare their undisclosed incomes in Income Declaration Scheme, 2016 and pay a total of 45% tax for one time settlement. 64,275 disclosures were made amounting to ₹652.5 billion (US$9.7 billion).

For Income tax purpose, tax payers or persons are classified into 3 categories:

Every category has different treatment regarding taxing their Indian incomes and Foreign incomes. For example, income from London is taxable to ROR, but not to NR.

An entity whose income exceeds the "maximum amount", which is not chargeable to the income tax, is an assessee, and shall be chargeable to the income tax at the rate or rates prescribed under the finance act for the relevant assessment year, shall be determined on basis of his residential status.

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