Various Authorities under the Income Tax Act, 1961
The article ‘Various authorities under the Income Tax Act, 1961’ is written in particular for those who are new to tax law and intend to get involved. One would be in a better position to determine the objectives of the legislature in drafting the Income Tax Act and establishing a hierarchy of authorities to ensure smooth tax collection.The most crucial element of any country’s financial framework is taxation. Individuals and corporate entities must pay taxes to the federal or…
The article ‘Various authorities under the Income Tax Act, 1961’ is written in particular for those who are new to tax law and intend to get involved. One would be in a better position to determine the objectives of the legislature in drafting the Income Tax Act and establishing a hierarchy of authorities to ensure smooth tax collection.
The most crucial element of any country’s financial framework is taxation. Individuals and corporate entities must pay taxes to the federal or state governments. Taxes are viewed as contributions made by people and businesses to the expansion and improvement of the economy. The Indian tax structure has changed over the years to accommodate the government’s expanding financial needs. The system is also intended to aid in the government’s achievement of its socioeconomic objectives. Tax reform is a continuous process that needs to be done on a regular basis to inspect the system for modernisation and repair.
In order to make up for the harm caused by the military uprising in 1857, Sir James Wilson introduced income tax for the first time in India in 1860. In 1886, a distinct Income Tax Act was established, and it was subject to various amendments over the years that it was in effect. In 1918, a new Income Tax Statute was passed, but it was swiftly overturned by a new act passed in 1922. A number of changes made to the Act of 1922 made it quite challenging. For the fiscal year 1961–1962, this law is still in force. In 1956, the Indian government requested assistance from the Law Commission to clarify the law and thwart tax fraud. In September 1958, the Law Commission delivered its findings in collaboration with the Ministry of Law.
The Income Tax Act of 1961 (IT Act) today governs India. On April 1, 1962, the present Income Tax Act became operative after being passed in 1961. The government referred the Income Tax Act to the Law Commission in 1956, and the report was delivered in 1958. The Direct Tax Administration Enquiry Commission’s Chairman, Shri Mahavir Tyagi, was chosen in 1958. Based on the recommendations of both of these bodies, the current Income Tax Act was developed. The 1961 Act has undergone numerous revisions since then.
Types of Tax
There are two types of taxes imposed on individuals and businesses:
1) Direct Tax: It is paid to the government directly, as the name implies. Income and property are subject to direct taxes since they are subject to government assessment. The Ministry of Finance establishes the tax rates in the budget for the fiscal year. It consists of interest, income, and expenditure taxes. India’s implementation of direct taxes is governed by the Income Tax Act, 1961 (the “Act”). India has a progressive direct tax system, meaning that the tax rate rises as income does.
2) Indirect Tax: It is the indirect levy paid to the government on the sales of goods and services. It is governed by the Goods and Services Act, 2017. The execution of the Goods and Services Act plays an important role in the determination of India as a federal state wherein the Central Goods and Services Tax (CGST) and Integrated Goods and Services Tax (IGST) is paid to the Union and State Goods and Services Tax (SGST) is paid to the state. It includes the Goods and Services Act, 2017, The Central Excise Act 1944, and The Customs Act 1962.
Need for Income Tax
Taxes are the government’s main source of revenue. Tax money is used to pay for public services like education, infrastructure improvements like roads and dams, and other things. The primary goal of collecting taxes is to provide the government with an adequate level of revenue. Taxes are now viewed as a tool for achieving the social and economic aims of a welfare state. The Income Tax Act of 1961 was consequently required.
Income Tax Authorities
The revenue functions of the Government of India are managed by the Ministry of Finance, and the Income Tax Authority is further segregated into different levels.
- The First level involves the Central Board of Direct Taxes and the Income Tax Department. The Central Board of Direct Taxes (CBDT) is in charge of administering direct taxes, including income tax, as entrusted by the Finance Ministry. The Ministry of Finance’s Department of Revenue includes the CBDT. The CBDT is governed by the Central Board of Revenue Act of 1963. The CBDT offers crucial insights for establishing policies and organising direct taxes. The Income Tax Department also oversees the enforcement of direct tax legislation. As a result, the Income Tax Department administers income tax law under the direction and authority of the CBDT.
- The Second Level involves authorities appointed by the Income Tax Department, which includes Principal Director General or Director-General, Chief Commissioner or Principal Chief Commissioner, Director or Principal Director, and Commissioner or Principal Commissioner. These authorities can appoint other income-tax authorities below the rank of an Assistant Commissioner or Deputy Commissioner.
- The Third Level involves an Assessing Officer, who is an officer of the Income Tax Department. He or she is given the authority to make decisions about the application of income tax law in a certain geographic area or to a group of people. Based on your geographic jurisdiction or the type of your income, you may determine who your assessing officer is. An Assessing Officer could have the designation of Assistant Commissioner or Deputy Commissioner, Assistant Director or Deputy Director, Additional Commissioner or Additional Director, or Joint Commissioner or Joint Director
- The Fourth Level involves Public Relations Officer in the local office of the Income Tax Department, who is responsible for helping the general public on tax-related matters and the Tax Return Preparers (TRPs), who are the tax professionals authorized by the government.
Significance of the Income Tax Act
The Income Tax Act aids the Government in collecting revenue which is eventually used by the Government for carrying out various welfare schemes including employment programmes. There are Lakhs of employees in various departments and the administrative cost has to be borne by the Government. Though the judicial process involves delay, the Salaries, and perks of Judges, Magistrates, and judicial staff have also to be paid by the Government. Thus considering these various duties of the Government, it is very crucial to make sure that the taxes are paid as per law.
Penalties under the Income Tax
The government will always have money available for public welfare if taxes are paid on time as per the schedule, and returns are filed. The Act includes a number of penalties to make sure that taxpayers don’t skip out on filing their taxes or providing information. A penalty is a sanction imposed on taxpayers who have broken the law. As part of the taxation systems, Indian tax authorities have been given the power to fine taxpayers for breaches ranging from non-filing returns to non-disclosure of income or non-payment of tax.
The Income Tax Act’s assessment methods do not include penalty proceedings. The procedure that the tax authorities must use in order to punish the assessee is laid out in Section 274 of the Income Tax Act of 1961. The method, in particular, considers natural justice principles (i.e., the assessee shall be given due notice and an opportunity for hearing prior to imposition). Additionally, Section 273AA enables you to request a penalty reduction from senior tax officials. The assessee may file a petition with the appellate authority to have an order imposing penalties against them reversed.
Contrarily, tax inspectors issuing show-cause notices are empowered under both Goods And Services Tax and Customs Legislation to fine assesses during the same processes. The Income-tax Act lists particular penalties for taxpayers who commit crimes like deliberate tax evasion, failing to pay already collected indirect taxes, and other similar offences. Such offences are subject to both a fine and a jail sentence. The tax cheat is then put on trial in accordance with the Criminal Procedure Code’s guidelines. As a result, taxpayers may make advantage of the Code’s legal options.
The importance of taxes can be witnessed in the plethora of ways in which their regulation affects the ebb and flow of economic activity. Governments will have enough money to invest in raising the standard of living within their boundaries with the help of effective tax legislation and payment collection. Tax deductions for certain investments and services, including life insurance, allow businesses and individuals to operate more independently and comfortably.
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