Test: Direct Taxes (Income Tax Act, 1961) - CLAT PG MCQ

The Income Tax Act, 1961 primarily aims to impose and collect tax on the income earned by individuals and entities. This legislation plays a crucial role in the Indian tax system by ensuring that income tax is levied on various sources of income, thereby contributing to the government's revenue. Additionally, it also seeks to promote economic stability by redistributing income. Understanding its objectives is essential for grasping the fundamentals of the taxation framework in India.

In the old tax regime for the financial year 2023-24, individuals earning between ₹2.5 lakh and ₹5 lakh are subjected to a tax rate of 5%. This tiered approach to taxation ensures that individuals pay taxes based on their income brackets, which is designed to be progressive and fair while contributing to government revenues.

An "assessee" is defined as any individual or entity that is liable to pay tax or any other sum of money under the Income Tax Act. This includes not just those whose income is being assessed, but also individuals who may be in default of tax payments. Understanding this definition is vital for recognizing who is subject to tax obligations under the law.

Advance tax payments are made to pay tax on income as it is earned during the financial year. This is applicable when an individual's tax liability exceeds ₹10,000 in a year. Such payments help in spreading the tax burden throughout the year, rather than having a lump-sum payment at the end of the financial year, which aids in better financial planning for taxpayers.

Non-compliance with tax laws can lead to serious consequences such as penalties for late filing and potential prosecution for tax evasion or failure to furnish returns. The Income Tax Act includes specific sections that detail penalties for various forms of non-compliance, emphasizing the importance of adhering to tax obligations to avoid legal repercussions. Understanding these consequences helps taxpayers appreciate the significance of timely and accurate tax filings.

An individual's residential status is determined primarily by the number of days they spend in India during a financial year. Specifically, a person is considered a resident if they stay in India for 182 days or more in that year, or for 60 days or more in the year and 365 days or more in the preceding four years. This status affects the tax liability, as residents are taxed on their global income while non-residents are taxed only on income sourced from India.

The Central Board of Direct Taxes (CBDT) is the primary authority responsible for overseeing the implementation of the Income Tax Act in India. The CBDT formulates policies and oversees the administration of direct taxes, ensuring compliance and efficient collection of taxes. Understanding the role of the CBDT is essential for recognizing how tax administration functions in India.

Non-Residents are taxed only on the income that is earned or received in India. Unlike residents, who are taxed on their global income, non-residents have a limited tax liability. This classification is significant for individuals who may have income sources both within and outside India, as it influences their tax obligations.

Income from charitable donations is not classified as a head of income for taxation purposes. Instead, it can be a basis for claiming deductions under certain sections of the Income Tax Act. The main heads of income include salaries, capital gains, and other specified sources. This distinction is important for taxpayers to understand what types of income are taxable versus what may be deductible.

The maximum deduction limit under Section 80C for individuals is ₹1.5 lakh. This section allows taxpayers to reduce their taxable income by the amount invested in specified savings instruments, which encourages savings and investment among individuals. It's an important aspect for taxpayers to leverage in order to minimize their overall tax liability.