Legal Internship Program 2025

Taxation Law:
A Comprehensive Analysis

Name – Soumya Tiwari

Enrollment No. – 20FLICDDN01048
Batch & Year – BBA LLB 5th year
Submitted To – Mr. Parth Upadhyay
 Acknowledgement

At the very outset, I would like to thank all those who were the ‘guiding
lights’ behind this project. First of all I would like to take this opportunity with
esteem privilege to express my heartfelt thanks and gratitude to my course
teacher Dr. Parth Upadhyay Faculty, ICFAI law school, for having faith in me
in awarding me this very significant project topic of such importance. His
consistent supervision, constant inspiration and invaluable guidance have
been of immense help in carrying out the project work with success.

Next, I would like to thank my classmates for lending me a helping hand

during the shaping up of the project; subsequently I would like to thank my
university for allowing me to avail the computer lab and internet facilities
without which this project would have been in a distant realm.

I extend my heartfelt thanks to my family and friends for their moral support
and encouragement. I also take this opportunity to thank all those people
who contribute in their own small ways but fail to get a mention.

Name – Soumya Tiwari

Enrollment No – 20FLICDDN01048

Batch – BBA LLB 2020-2025

 Object and Methodology
The present research work on the topic of “Taxation Laws” is both explorative and analytical. It
sought to construct, throughout the analysis of secondary data. The documents of government
policy, financial data, and financial static provided by international authorities are analyzed and
try to find out the changes and loopholes in it. Published works by eminent authors are also
consulted during the research.
Since, the present topic was purely academic it was inevitable and inherently mandatory that
only secondary sources be made use of. Therefore, I have made use of journal articles, leading
books and of course the source of knowledge for students: Internet.
Introduction
Definition and importance of taxation

Taxation is the compulsory financial charge imposed by

governments on individuals, businesses, and other entities to
generate revenue for public purposes. It is a fundamental
mechanism through which governments fund essential services
such as infrastructure, healthcare, education, defense, and social
welfare. Taxes can be levied on income, property, consumption,
transactions, and various economic activities, forming the
backbone of government financing at local, state, and national
levels.
The importance of taxation lies in its multiple roles. Primarily, it
provides the necessary funds for public goods and services that
benefit society as a whole. Taxes also serve as tools for
redistributing wealth, helping reduce economic inequalities by
financing social programs. Furthermore, taxation regulates
economic behavior by discouraging harmful activities through
specific levies, such as environmental taxes. It stabilizes the
economy by enabling government spending and investment,
which can stimulate growth or control inflation. Lastly, taxation
promotes social justice by ensuring that all members of society
contribute fairly to the nation’s development and maintenance.
In summary, taxation is indispensable for the functioning of
modern states, supporting government operations, economic
regulation, and social equity. Without it, governments would lack
the resources to provide public services and maintain societal
order. Understanding taxation is crucial for both citizens and
businesses to fulfill their legal obligations and participate in the
economic system responsibly.
Taxation laws broadly classify taxes into two main categories:
direct taxes and indirect taxes, each with distinct characteristics,
administration, and economic impact.

Direct Taxes

Direct taxes are levied directly on the income, profits, or wealth of

individuals and entities. The key feature of direct taxes is that the
burden of the tax cannot be shifted to another party; the person
or organization on whom the tax is imposed is responsible for
paying it directly to the government. Examples include income
tax, corporate tax, wealth tax, and property tax.
Direct taxes are generally progressive, meaning the tax rate
increases with the taxpayer’s ability to pay, thereby serving as a
tool for redistributing wealth and reducing income inequality.
These taxes are administered by the Central Board of Direct
Taxes (CBDT) in India. The government uses direct taxes to
generate revenue while also influencing economic behavior and
social equity.

Indirect Taxes

Indirect taxes, in contrast, are levied on goods and services rather

than on income or profits. They are collected by intermediaries
such as manufacturers, wholesalers, or retailers, who then pass
the tax burden onto the final consumer through higher prices.
Examples include Goods and Services Tax (GST), customs duty,
excise duty, and sales tax.
Since indirect taxes are included in the price of goods and
services, the end consumer ultimately bears the cost. These taxes
tend to be regressive, as they take a larger percentage of income
from lower-income individuals compared to higher-income
earners. The Central Board of Indirect Taxes and Customs (CBIC)
administers indirect taxes in India.

Key Differences
Aspect Direct Taxes Indirect Taxes

Imposition On income, On goods and services

profits, or wealth

Payment Paid directly by Paid to intermediaries,

taxpayer to then to government
government

Burden Cannot be shifted Can be shifted to the

consumer

Nature Progressive Regressive

Examples Income tax, GST, customs duty,

corporate tax, excise duty
wealth tax

Administratio Central Board of Central Board of

n Direct Taxes Indirect Taxes and
(CBDT) Customs (CBIC)

Role in the Economy

Direct taxes help in wealth redistribution and promote social

justice by taxing individuals based on their ability to pay. Indirect
taxes are significant for revenue generation and regulating
consumption patterns. Both types are essential for funding
government expenditures such as infrastructure, defense,
education, and healthcare.
In India, the taxation system operates at multiple levels—central,
state, and local—with specific taxes assigned to each level under
the Constitution. The balance between direct and indirect taxes is
crucial for economic stability, growth, and fairness in the tax
system.
Background and History

Ancient and Medieval Periods

The roots of taxation in India trace back to ancient times,

including the Indus Valley Civilization (around 2500 BCE), where
early forms of revenue collection likely supported public
infrastructure. During the Vedic period (1500–500 BCE), taxes
were mainly in-kind contributions such as agricultural produce
and cattle, known as the "bali" system, to sustain rulers and
priests.
The Mauryan Empire (322–185 BCE) marked a significant
advancement with organized tax systems. Emperor Chandragupta
Maurya implemented land revenue as a major source of state
income, collected in cash and kind. The Arthashastra, attributed
to Chanakya, provided detailed guidelines on taxation and
administration.
In the medieval era, empires like the Guptas and later the Mughal
Empire refined tax systems further. The Mughal administration
introduced the "Zabt" system, a land revenue assessment
method based on measurement and productivity.

Colonial Period

The British colonial period brought major changes to India’s

taxation framework. Income tax was first introduced in 1860 by
Sir James Wilson to offset losses from the 1857 rebellion. This tax
was progressive but faced resistance and was temporarily
repealed in 1865. It was reintroduced in 1867 and formalized by
the Income Tax Act of 1886.
Subsequent reforms included the 1918 Income Tax Act to address
World War I expenses, and the 1922 Income Tax Act, which laid
the foundation for modern income tax law in India. During this
period, taxes expanded to include customs, excise, and other
levies.

Post-Independence Developments
After independence in 1947, India retained the 1922 Income Tax
Act with amendments until the comprehensive Income Tax Act of
1961 came into force in 1962, which governs direct taxes today.
The Central Board of Direct Taxes (CBDT) and Central Board of
Excise and Customs (now CBIC) were established in 1963 to
administer direct and indirect taxes respectively.
Indirect taxes also evolved significantly. Excise duties were
introduced in 1944, and over decades, multiple central and state
indirect taxes existed, including customs duty, service tax, VAT,
and sales tax. The landmark reform came in 2017 with the
introduction of the Goods and Services Tax (GST), which unified
many indirect taxes into a single comprehensive tax system,
simplifying compliance and broadening the tax base.

Global Development of Taxation Laws

The concept of taxation dates back to ancient civilizations, but

modern international taxation began taking form in the early 20th
century. The League of Nations in the 1920s laid the groundwork
for international tax coordination to avoid double taxation and
ensure fair tax distribution among countries. This involved
establishing principles to determine taxing rights between
countries on cross-border income, fostering economic cooperation
and reducing tax conflicts.
Post World War II, organizations like the Organisation for
Economic Co-operation and Development (OECD) and the United
Nations developed model tax conventions to guide bilateral
treaties, further refining international tax rules. These treaties
aim to prevent double taxation, reduce tax evasion, and facilitate
global trade and investment.
The rise of globalization and digital economies since the 1980s
challenged traditional tax regimes. Increased capital mobility,
digital services, and multinational enterprises complicated tax
jurisdiction and revenue allocation. This led to the creation of a
new international tax regime focused on combating tax
avoidance, addressing tax competition, and ensuring equitable
tax revenue sharing among nations.
Historically, taxation systems evolved from arbitrary sovereign
levies to structured laws administered by governments. The 20th
century saw a shift from reliance on customs and excise duties
toward income taxes and value-added taxes (VAT), reflecting
changes in economic structures and administrative capabilities.
Modern tax systems emphasize fairness, efficiency, and
compliance, adapting to technological advances and economic
globalization.

Development of Taxation Laws in India

India’s taxation history is deeply rooted in its ancient and colonial

past. Early taxation involved in-kind contributions and land
revenues during the Mauryan and Mughal periods. The British
colonial administration introduced formal income tax in 1860,
evolving through various acts culminating in the Income Tax Act
of 1961, which remains the foundation of direct tax law in India.
Post-independence, India developed a dual tax system with direct
taxes like income and corporate tax, and indirect taxes such as
customs, excise, and service taxes. The introduction of the Goods
and Services Tax (GST) in 2017 was a landmark reform, unifying
multiple indirect taxes into a single comprehensive system,
simplifying compliance and broadening the tax base.
India’s tax laws reflect constitutional provisions dividing taxation
powers between the central and state governments. Over time,
reforms have focused on expanding the tax net, improving
administration, and aligning with global standards to attract
investment and ensure equitable tax collection.

Types of Taxes and Taxation Systems: Direct Taxes

Overview of Direct Taxes

Direct taxes are taxes imposed directly on the income, profits, or

wealth of individuals and entities. The hallmark of direct taxes is
that the taxpayer who is legally responsible for the tax cannot
transfer the burden to another party. These taxes are typically
progressive, meaning the tax rate increases as the taxpayer’s
income or wealth increases, which helps in reducing income
inequality and promoting social justice.
In India, direct taxes are administered by the Central Board of
Direct Taxes (CBDT), which operates under the Department of
Revenue. Direct taxes form a crucial part of government revenue
and are essential for funding public services and infrastructure.

Key Types of Direct Taxes

1. Income Tax

 Definition: Income tax is levied on the income earned by

individuals, Hindu Undivided Families (HUFs), firms,
companies, and other entities.
 Scope: It covers various sources of income such as salary,
business profits, capital gains, house property, and other
sources.
 Progressive Nature: Tax rates increase with higher income
slabs, ensuring that those with greater ability to pay
contribute more.
 Compliance: Taxpayers must file annual returns declaring
their income and pay taxes accordingly.

2. Corporate Tax

 Definition: Corporate tax is charged on the profits earned

by companies and firms.
 Applicability: It applies to domestic companies as well as
foreign companies operating in India.
 Special Provisions: Includes provisions for Minimum
Alternate Tax (MAT) to ensure companies pay a minimum
amount of tax regardless of exemptions.
 International Aspect: Corporate tax laws also address
transfer pricing and international taxation to prevent tax
evasion by multinational corporations.

3. Capital Gains Tax

  Definition: This tax is levied on the profit arising from the
sale or transfer of capital assets such as property, stocks, or
bonds.
 Types:
 Short-term capital gains (assets held for a short
duration) are taxed at higher rates.
 Long-term capital gains (assets held for longer periods)
enjoy concessional tax rates.
 Purpose: Encourages long-term investment by offering
lower tax rates on long-term gains.

Importance of Direct Taxes

 Revenue Generation: Direct taxes contribute significantly

to government revenue, supporting public expenditure on
health, education, defense, and infrastructure.
 Wealth Redistribution: Progressive tax rates help reduce
economic disparities by taxing higher incomes at higher
rates.
 Economic Regulation: Direct taxes can influence economic
behavior, such as encouraging savings and investments
through deductions and exemptions.
 Certainty and Transparency: Since taxpayers directly pay
these taxes, there is clarity about tax liabilities and
compliance requirements.

Summary Table of Direct Taxes

Type of Tax Key Purpose

Tax Base Features

Income Individu Progressi Revenue

Tax al and ve rates, and wealth
entity multiple redistributi
income income
 heads on

Corpora Compan Includes Revenue

te Tax y profits MAT, and
transfer regulation
pricing of business
rules profits

Capital Profit Different Encourage

Gains from rates for long-term
Tax asset short and investment
sales long-term
gains

Direct taxes form the backbone of a fair and equitable taxation

system by directly taxing the ability to pay. They play a vital role
in ensuring that the government has adequate resources to meet
its developmental and welfare objectives.

Indirect Taxes: GST, Customs Duty, and Excise Duty

Overview of Indirect Taxes

Indirect taxes are levied on goods and services rather than on

income or profits. Unlike direct taxes, the tax burden in indirect
taxes can be shifted from the initial payer (such as a
manufacturer or retailer) to the final consumer through higher
prices. Indirect taxes are a significant source of government
revenue and play an important role in regulating consumption
and trade.

1. Goods and Services Tax (GST)

What is GST?

 GST is a comprehensive, multi-stage, destination-based tax

levied on the supply of goods and services across India.
 It replaced a complex web of indirect taxes like excise duty,
service tax, and VAT, aiming to unify the indirect tax
structure.

GST Structure and Components

 Dual GST Model: Both Central and State Governments levy

GST.
 Central GST (CGST): Collected by the Central
Government on intra-state sales.
 State GST (SGST): Collected by the State Government
on intra-state sales.
 Integrated GST (IGST): Collected by the Central
Government on inter-state sales and imports.
 Union Territory GST (UTGST): Applicable in Union
Territories for intra-UT transactions.

GST Tax Slabs

 GST follows a four-tier tax rate structure:

 0%: Essential goods like food grains, healthcare, and
education services are exempt.
 5%: Everyday items such as tea, coffee, and economy
travel.
 12% and 18%: Most goods and services, including
processed foods and electronics.
 28%: Luxury and sin goods like automobiles, aerated
drinks, and tobacco products.
 Some goods attract an additional cess over and above the
28% rate.

Key Features of GST

 Input Tax Credit: Businesses can claim credit for GST paid
on inputs, reducing cascading taxes.
  Composition Scheme: Small businesses with turnover
below a threshold can pay GST at a fixed rate without
detailed compliance.
 Purpose: Simplifies tax compliance, promotes ease of doing
business, and ensures a uniform tax regime across states.

2. Customs Duty

Definition and Purpose

 Customs duty is a tax imposed on goods imported into or

exported out of India.
 It protects domestic industries by regulating imports and
generating revenue for the government.

Types of Customs Duty

 Basic Customs Duty: Standard tax on imported goods.

 Additional Duties: Include countervailing duty (CVD) and
safeguard duty to protect domestic markets.
 Anti-Dumping Duty: Levied to prevent dumping of cheap
foreign goods.

Administration

 Collected by the Central Board of Indirect Taxes and

Customs (CBIC).
 Customs duty rates vary depending on the nature of goods
and trade policies.

3. Excise Duty

Definition and Scope

 Excise duty is a tax on the manufacture or production of

goods within India.
  Traditionally levied on items like alcohol, tobacco, petroleum
products, and certain manufactured goods.

Evolution under GST

 Post-GST implementation, central excise duty applies mainly

to petroleum products and tobacco, which are outside GST.
 Excise duty is collected by the Central Government.

Purpose

 Generates revenue and regulates production and

consumption of specific goods.

Summary Table of Key Indirect Taxes

Tax Imposed Administer Key

Type On ed By Featur
es

GST Supply of Central & Four-

goods and State tier tax
services Government slabs,
s input
tax
credit,
dual
GST
model

Custo Import and Central Protects

ms export of Government domesti
Duty goods (CBIC) c
industr
y,
multipl
e duty
 types

Excise Manufactu Central Applies

Duty re of goods Government to
specific
goods,
now
limited
post-
GST

Progressive, Regressive, and Proportional Tax Systems

Tax systems can be broadly classified into three types based on

how the tax rate changes relative to the taxpayer’s income or
ability to pay: progressive, regressive, and proportional taxes.
Each system has different implications for income distribution,
economic equity, and government revenue.

1. Progressive Tax System

Definition

 A progressive tax imposes a higher tax rate as the taxable

income increases.
 The tax rate rises with income, so high-income earners pay a
larger percentage of their income compared to low-income
earners.

Characteristics

 Tax liability increases more than proportionally with income.

 It is based on the principle of ability to pay, meaning those
who earn more can afford to contribute more.
  Common examples include personal income tax and estate
taxes.

Impact

 Helps reduce income inequality by redistributing wealth.

 Provides vertical equity, where taxpayers with different
incomes pay different rates.
 Graphically, the tax rate curve slopes upward, becoming
steeper as income rises.

Example

Income Tax Rate Tax Amount

(₹) (%) (₹)

10,000 5 500

20,000 10 2,000

30,000 15 4,500

40,000 20 8,000

2. Regressive Tax System

Definition

 A regressive tax takes a larger percentage of income from

low-income earners than from high-income earners.
  The tax rate decreases as income increases, placing a
heavier relative burden on the poor.

Characteristics

 The average tax rate declines as income rises.

 Often applies to consumption taxes or flat taxes on goods
and services.
 Examples include sales tax, excise duties, and property
taxes.

Impact

 Can exacerbate income inequality by disproportionately

affecting lower-income groups.
 Considered less equitable as it does not align with the
taxpayer’s ability to pay.
 Graphically, the tax rate curve slopes downward as income
increases.

Example

Income Tax Rate Tax Amount

(₹) (%) (₹)

10,000 15 1,500

20,000 10 2,000

30,000 7 2,100

40,000 5 2,000

3. Proportional Tax System (Flat Tax)

Definition

 A proportional tax charges the same tax rate regardless of

income level.
 Everyone pays the same percentage of their income in
taxes.

Characteristics

 Tax rate remains constant across all income groups.

 Simple to administer and understand.
 Examples include some occupational taxes and flat-rate
income taxes.

Impact

 Does not reduce income inequality since all pay the same
rate.
 Can be seen as fair in terms of equal treatment but may
place a relatively higher burden on low-income earners.
 Graphically, the tax rate is a straight horizontal line.

Example

Income Tax Rate Tax Amount

(₹) (%) (₹)

10,000 10 1,000

20,000 10 2,000

30,000 10 3,000

40,000 10 4,000
Summary Table of Tax Systems

Tax Tax Impact Equity Examples

System Rate on Aspect
Behavio Income
r Groups

Progressiv Increase Higher Promote Income

e s with burden s tax, estate
income on high- vertical tax
income equity
earners

Regressive Decreas Higher Can Sales tax,

es with burden increase excise
income on low- inequalit duties
income y
earners

Proportion Constant Equal Neutral Flat tax,

al across percenta but may some
all ge for all burden occupation
incomes poor al taxes

Income Tax Law: Basic Concepts

Understanding the basic concepts of income tax is essential for

grasping how the tax system operates under the Income Tax Act,
1961, which governs income tax in India. Key terms such
as assessee, assessment year, and previous year form the
foundation of income tax law.

1. Assessee
  Definition: An assessee is any person or entity who is liable
to pay income tax or any other sum of money under the
Income Tax Act.
 Who can be an assessee? This includes individuals, Hindu
Undivided Families (HUFs), companies, firms, associations of
persons, bodies of individuals, local authorities, and any
other artificial juridical person.
 Role: The assessee is responsible for filing income tax
returns, paying taxes, and complying with the provisions of
the Income Tax Act.

2. Previous Year

 Definition: The previous year is the financial year

immediately preceding the assessment year, during which
the income is earned.
 Time Frame: In India, the previous year runs from April 1st
to March 31st of the next year.
 Significance: Income earned during the previous year is
assessed for tax in the following assessment year.
 Example: For the assessment year 2025-26, the previous
year is April 1, 2024, to March 31, 2025.

3. Assessment Year

 Definition: The assessment year is the period of 12 months

starting from April 1st every year, in which the income
earned in the previous year is assessed and taxed.
 Purpose: It is the year in which the taxpayer files the
income tax return and the Income Tax Department assesses
the income.
 Relationship with Previous Year: Income earned in the
previous year is taxed in the assessment year immediately
following it.
 Example: Income earned in the previous year 2024-25 is
assessed and taxed in the assessment year 2025-26.
4. Charge of Income Tax

 Income tax is charged annually on the income earned by the

assessee during the previous year.
 The tax rates applicable are those notified for the
assessment year.
 The Finance Act passed every year fixes the tax rates for the
assessment year.
 If the new Finance Act is not in place by April 1 of the
assessment year, the provisions from the previous year or
the proposed Finance Bill, whichever is more beneficial to
the assessee, apply.

Summary of Key Concepts

Concept Definition Time Frame /

Role

Assessee Person or Responsible for

entity liable tax compliance
to pay tax

Previous Year in April 1 to

Year which March 31
income is preceding the
earned assessment
year

Assessment Year in April 1 to

Year which March 31
income is following the
assessed and previous year
taxed
Heads of Income and Computation of Total Income

The Income Tax Act, 1961, classifies all taxable income under five
distinct categories known as the heads of income. Each head
has specific rules for computation, deductions, and exemptions.
Proper classification is essential for accurate tax calculation and
compliance.

1. Five Heads of Income

As per Section 14 of the Income Tax Act, all income earned by a

taxpayer must be categorized under the following five heads:
 Income from Salaries
 Income from House Property
 Income from Profits and Gains from Business or
Profession
 Income from Capital Gains
 Income from Other Sources

2. Detailed Explanation of Each Head

Income from Salaries

 Includes all earnings from employment such as basic salary,

allowances, perquisites, bonuses, commissions, gratuity,
pension, and leave encashment.
 Taxable under Sections 15 to 17.
 Common exemptions include House Rent Allowance (HRA),
Leave Travel Allowance (LTA), and standard deduction of
₹50,000.
 Deductions available for professional tax and employee
contributions to provident funds.

Income from House Property

 Income earned from owning property, primarily rental

income.
  Taxable if the property is let out or deemed to be let out.
 Computation involves deducting municipal taxes and a
standard deduction of 30% for repairs and maintenance.
 If the property is self-occupied, income is generally nil but
interest on home loan can be claimed as a deduction.

Income from Profits and Gains from Business or Profession

(PGBP)

 Income derived from carrying on a business or profession.

 Includes profits from trading, manufacturing, consultancy,
freelancing, and other professional services.
 Taxpayers must maintain books of accounts and follow
prescribed accounting standards.
 Various expenses incurred wholly and exclusively for
business are deductible.

Income from Capital Gains

 Income arising from the transfer of capital assets like

property, shares, bonds, mutual funds, gold, etc.
 Classified into short-term and long-term capital gains based
on the holding period.
 Different tax rates apply to short-term and long-term gains.
 Certain exemptions are available under sections like 54,
54EC, and 54F for reinvestment in specified assets.

Income from Other Sources

 Residual category covering income not taxable under other

heads.
 Includes interest income, dividends, winnings from lotteries,
gifts (above specified limits), and family pension.
 Taxed at normal slab rates without specific deductions
except those allowed under general provisions.

3. Computation of Total Income

The total income of a taxpayer is computed by aggregating
income from all five heads after allowing for specific deductions
and exemptions under each head. The process involves the
following steps:
 Step 1: Calculate income under each head separately by
applying relevant deductions.
 Step 2: Aggregate the income from all heads to arrive at
the Gross Total Income.
 Step 3: Deduct eligible deductions under Chapter VI-A (such
as Section 80C, 80D) from the gross total income.
 Step 4: The result is the Total Taxable Income, on which
income tax is calculated as per applicable rates.

Summary Table of Heads of Income

Head of Description Key

Income Features /
Deductions

Income Earnings from HRA, LTA

from employment exemptions,
Salaries standard
deduction

Income Rental income 30%

from House from property standard
Property deduction,
municipal
tax

Income Business or Deductible

from Profits professional business
and Gains income expenses
from
Business or
Profession

Income Gains from Short-term

from transfer of and long-
Capital capital assets term gains,
Gains exemptions

Income Miscellaneous Interest,

from Other income dividends,
Sources gifts,
lotteries

Exemptions, Deductions, and Rebates under Income Tax

Law

Income tax liability can be reduced

through exemptions, deductions, and rebates. These
provisions encourage savings, investments, and social welfare,
while providing relief to taxpayers.

1. Exemptions

Exemptions refer to specific incomes that are wholly or partially

exempt from tax under the Income Tax Act. These incomes are
not included in the total taxable income.
 Common exemptions include:
 Agricultural income (fully exempt).
 House Rent Allowance (HRA) for salaried employees
(subject to conditions).
 Leave Travel Allowance (LTA) for travel expenses
within India.
 Certain allowances for children’s education, transport,
and medical reimbursement.
 Income from specified bonds or securities.
  Exemptions vary between the old and new tax regimes, with
the new regime limiting many exemptions.

2. Deductions

Deductions reduce the gross total income, lowering the taxable

income. They are available under various sections, especially
under Chapter VI-A of the Income Tax Act.

Key Deductions under Chapter VI-A

 Section 80C: Deduction up to ₹1.5 lakh for investments in

Provident Fund, Life Insurance Premium, Equity Linked
Savings Scheme (ELSS), National Savings Certificate, etc.
 Section 80D: Deduction for health insurance premiums
paid for self, family, and senior citizens.
 Section 24(b): Deduction on interest paid on housing loan:
 Up to ₹2 lakh for self-occupied property.
 No upper limit for let-out property.
 Section 80E: Deduction on interest paid on education loans.
 Section 80TTA/80TTB: Deduction on interest income from
savings accounts (₹10,000 for general taxpayers and
₹50,000 for senior citizens).
 Section 80G: Deduction for donations to charitable
institutions.
 Section 80CCD: Contributions to National Pension Scheme
(NPS).

Standard Deduction

 Salaried individuals and pensioners can claim a standard

deduction of ₹75,000 under both old and new tax regimes
(FY 2025-26).

3. Rebates
Rebates are amounts deducted directly from the tax payable,
reducing the actual tax liability.
 Section 87A Rebate:
 For FY 2025-26, resident individuals with taxable
income up to ₹12 lakh under the new tax regime are
eligible for a rebate of up to ₹60,000, effectively
making their tax liability zero.
 Under the old regime, the rebate is up to ₹12,500 for
individuals with taxable income up to ₹5 lakh.
 The rebate applies only to income taxed at normal slab
rates and excludes incomes taxed at special rates.

4. Recent Changes and Highlights (FY 2025-26)

 The basic exemption limit under the new tax regime has
increased to ₹4 lakh.
 The income tax slabs under the new regime start at 0% for
income up to ₹4 lakh and go up to 30% for income above
₹24 lakh.
 The standard deduction for salaried individuals remains at
₹75,000.
 Many conventional deductions like HRA, LTA, and Section
80C benefits are largely unavailable under the new tax
regime.
 Interest on housing loan deduction under Section 24(b)
remains applicable in both regimes with limits as specified.

Summary Table

Provision Purpose Limit / Applicab

Details le
Regime

Exemptio Income HRA, Old

ns not LTA, mostly;
 taxable agricultur limited in
al New
income,
etc.

Section Investmen Up to Old

80C ts and ₹1.5 lakh regime
Deduction savings only

Section Interest ₹2 lakh Both

24(b) on for self- regimes
Deduction housing occupied;
loan unlimited
for let-
out

Standard Salaried ₹75,000 Both

Deduction and regimes
pensioner
s

Section Tax Up to Both

87A rebate for ₹60,000 regimes
Rebate low- for
income income ≤
individual ₹12 lakh
s (New);
₹12,500
for
income ≤
₹5 lakh
(Old)

Tax Rates and Slabs for FY 2025-26 (Assessment Year

2026-27)
The Union Budget 2025 introduced significant changes to the
income tax slabs under the new tax regime, effective from April
1, 2025. These changes aim to simplify the tax structure and
provide relief to taxpayers across various income brackets.

1. New Tax Regime Slabs and Rates

The new tax regime is the default tax regime for individual
taxpayers, Hindu Undivided Families (HUFs), Associations of
Persons (AOPs), and others, with the option to opt for the old
regime if they wish to claim deductions and exemptions.

Income Range Tax Description

(₹) Rate
(%)

Up to ₹4,00,000 Nil No tax

₹4,00,001 to 5% Lower tax

₹8,00,000 bracket

₹8,00,001 to 10% Moderate tax

₹12,00,000 rate

₹12,00,001 to 15% Mid-level tax

₹16,00,000 rate

₹16,00,001 to 20% Higher middle

₹20,00,000 bracket

₹20,00,001 to 25% Upper middle

₹24,00,000 bracket
Above 30% Highest tax
₹24,00,000 bracket

 These slabs apply to individuals below 60 years of age.

 The tax rates are progressive, increasing with income.
 The new regime excludes most exemptions and deductions
but offers lower slab rates.

2. Old Tax Regime (Optional)

The old tax regime allows taxpayers to claim various exemptions

and deductions such as House Rent Allowance (HRA), standard
deduction, Section 80C investments, etc. The slabs under the old
regime (unchanged for FY 2025-26) are:

Income Range Tax Description

(₹) Rate
(%)

Up to ₹2,50,000 Nil No tax

₹2,50,001 to 5% Lower tax

₹5,00,000 bracket

₹5,00,001 to 20% Middle tax

₹10,00,000 bracket

Above 30% Highest tax

₹10,00,000 bracket

 Higher exemption limits apply for senior citizens and super

senior citizens.
 Taxpayers can choose this regime if they want to claim
deductions and exemptions.
3. Surcharge and Cess

 Surcharge: Additional surcharge applies on income tax for

individuals with income above ₹50 lakh, ranging from 10% to
37% depending on income slabs.
 Health and Education Cess: A cess of 4% is levied on the
total tax plus surcharge.

4. Key Highlights of FY 2025-26 Tax Changes

 The basic exemption limit under the new regime

increased to ₹4 lakh from ₹3 lakh.
 Introduction of more progressive slabs with smaller
increments in rates.
 Potential tax savings of up to ₹1.14 lakh annually for
taxpayers under the new regime.
 The new tax regime is the default, but taxpayers can opt for
the old regime if they want to avail exemptions and
deductions.
 Standard deduction of ₹75,000 continues for salaried
individuals and pensioners under both regimes.

5. Choosing Between New and Old Regimes

 New Regime: Simpler, lower tax rates, but limited

deductions and exemptions.
 Old Regime: Higher tax rates but allows various deductions
and exemptions, beneficial for taxpayers with significant
investments or expenses eligible for tax benefits.
Taxpayers should evaluate their income, investments, and eligible
deductions to choose the most tax-efficient regime.

Filing of Income Tax Returns and Compliance

Requirements
Filing Income Tax Returns (ITR) is a mandatory compliance for
taxpayers in India to report their income, deductions, and tax
payments to the Income Tax Department. It ensures
transparency, legal compliance, and enables claiming refunds or
carrying forward losses.

1. Who Should File Income Tax Returns?

 Resident individuals with total income exceeding the basic

exemption limit.
 Individuals with income from salary, business, profession,
capital gains, house property, or other sources.
 Persons who want to claim refunds or carry forward losses.
 Taxpayers with foreign assets or income.
 Those required under law to file returns, including non-
residents and companies.

2. Applicable ITR Forms for AY 2025-26

 ITR-1 (Sahaj): For resident individuals with income up to

₹50 lakh from salary, one house property, family pension,
and other sources excluding lottery or race winnings.
 ITR-2: For individuals and HUFs with income from capital
gains, more than one house property, or foreign assets.
 ITR-3: For individuals and HUFs with income from business
or profession.
 ITR-4 (Sugam): For individuals and firms (other than LLP)
with presumptive income from business or profession.
 Other forms apply to companies, firms, trusts, etc.

3. Due Dates for Filing ITR

 Non-audit cases (individuals, HUFs, etc.): Extended

to 15th September 2025 for FY 2024-25 (AY 2025-26).
  Audit cases (businesses, companies): 31st October
2025.
 Revised return filing: Up to 31st December 2025.
 Late filing beyond due dates attracts penalties and interest.

4. Steps for Filing ITR

 Step 1: Register or log in to the Income Tax e-Filing portal

using PAN.
 Step 2: Select the applicable ITR form based on income
sources.
 Step 3: Pre-fill data such as PAN, Aadhaar, and Form 26AS
(tax credit statement).
 Step 4: Enter income details, deductions, and tax
payments.
 Step 5: Choose the tax regime (New or Old) as applicable.
 Step 6: Verify the details and submit the return.
 Step 7: Complete e-verification via Aadhaar OTP, net
banking, or sending signed ITR-V to CPC Bangalore.

5. Compliance Requirements

 Advance Tax: Taxpayers with tax liability exceeding

₹10,000 must pay advance tax in installments during the
financial year.
 Tax Deducted at Source (TDS): Tax deducted by
employers or others must be reflected in Form 26AS.
 Self-Assessment Tax: Any balance tax after TDS and
advance tax must be paid before filing ITR.
 Record Keeping: Maintain documents supporting income,
deductions, and tax payments for at least 6 years.
 Audit and Assessment: Certain taxpayers must get
accounts audited and file audit reports along with ITR.

6. Penalties for Non-Compliance

  Late Filing Fee: Up to ₹5,000 for delay beyond due date;
₹1,000 if income is below ₹5 lakh.
 Interest: Under Sections 234A, 234B, and 234C for delayed
filing and payment.
 Prosecution: In cases of willful tax evasion or false returns.

7. Revising and Rectifying Returns

 Taxpayers can file a revised return under Section 139(5)

before the end of the relevant assessment year or before
completion of assessment.
 Errors or omissions can be corrected through revised
returns.
 E-verification is mandatory for revised returns as well.

Tax Administration and Procedures:

Assessment Procedures and Types of
Assessments
The Income Tax Department (ITD) administers tax laws and ensures
compliance through various assessment procedures. Assessment is the
process of verifying the correctness of the income declared by taxpayers in
their Income Tax Returns (ITR) and determining the tax liability accordingly.

1. Overview of Assessment Procedures

 Purpose: To verify the accuracy of income declared, deductions
claimed, and taxes paid by the assessee.
 Process: The ITD cross-checks the ITR details with information
available from multiple sources like Form 26AS (TDS statements),
Annual Information Statement (AIS), Taxpayer Information Summary
(TIS), and third-party data.
 Outcome: If the return is found correct, the department processes
refunds or closes the case. If discrepancies are found, notices for
further scrutiny or demand are issued.
2. Types of Income Tax Assessments
a. Self-Assessment
 Taxpayers compute their own tax liability, pay any balance tax, and file
their returns.
 This is the most common form of assessment.
 The return filed is treated as a valid assessment unless selected for
further scrutiny.

b. Summary Assessment (Processing of

Return)
 The ITD processes the return to check for arithmetic errors, incorrect
claims, or mismatches.
 Refunds are processed if applicable.
 No detailed examination unless discrepancies arise.

c. Scrutiny Assessment
 Conducted when the return is selected for detailed examination based
on risk parameters or random selection.
 The assessee is required to provide supporting documents and
explanations.
 The assessing officer may accept the return, raise a demand, or initiate
penalty proceedings.

d. Best Judgment Assessment

 Applied when the assessee fails to file a return or comply with notices.
 The assessing officer estimates the income based on available
information.
 This assessment is generally unfavorable to the assessee.

e. Reassessment or Income Escaped

Assessment
 The ITD can reassess income if it believes some income has escaped
assessment.
 Notice is issued within the prescribed time limit.
 The reassessment can be based on new information or evidence.
3. Key Procedures in Assessment
 Notice Issuance: The department issues notices under various
sections (e.g., Section 143(2) for scrutiny) requiring the assessee to
appear or submit documents.
 Submission of Evidence: The assessee must provide books of
accounts, bills, contracts, and other proofs.
 Assessment Order: After examination, the assessing officer passes
an order accepting or modifying the income and tax liability.
 Appeals: The assessee can appeal against adverse orders in the
Commissioner of Income Tax (Appeals) or higher authorities.

4. Time Limits for Assessment

 Normal Assessment: Within 2 years from the end of the relevant
assessment year.
 Reassessment: Generally within 3 years, extendable to 10 years in
cases involving undisclosed income exceeding ₹50 lakh.
 The new Income Tax Bill 2025 proposes simplifications and changes to
time limits and procedures to enhance efficiency.

5. Advance Tax and Self-Assessment Tax

 Taxpayers with tax liability exceeding ₹10,000 must pay advance tax
in installments during the year.
 Self-assessment tax is the balance tax payable at the time of filing
returns after adjusting TDS and advance tax.

6. Compliance and Penalties

 Failure to comply with notices or incorrect disclosures can lead to
penalties, interest, and prosecution.
 The department encourages voluntary compliance and provides
mechanisms for rectification and dispute resolution.
Tax Audits and Investigations in India
Tax audits and investigations are critical components of the Indian tax
administration system designed to ensure compliance with tax laws, detect
discrepancies, and prevent tax evasion. Recent reforms and updates have
further refined these procedures to enhance transparency and efficiency.

1. Tax Audit: Overview and Purpose

 A tax audit is a detailed examination of a taxpayer’s financial records
and accounts to verify the correctness of income declared, deductions
claimed, and compliance with tax provisions.
 It is mandated under Section 44AB of the Income Tax Act, 1961,
primarily for businesses and professionals exceeding specified turnover
or gross receipts thresholds.
 The audit ensures adherence to accounting standards and tax laws,
helping detect errors, omissions, or potential tax evasions.
 Tax audits promote financial transparency and assist the Income Tax
Department in accurate tax assessment.

2. Applicability of Tax Audit (Section 44AB)

 Businesses with turnover exceeding ₹10 crore (₹100 million) in a
financial year must undergo tax audit.
 For entities with at least 95% digital transactions, the turnover
threshold is ₹100 crore (₹1 billion).
 Professionals with gross receipts exceeding ₹50 lakh (₹5 million) are
also required to get their accounts audited.
 Entities opting for presumptive taxation but declaring profits lower
than prescribed limits must also comply.
 The audit report must be submitted along with the Income Tax Return
(ITR).

3. Recent Amendments Effective April 1, 2025

 The Income-tax (Eighth Amendment) Rules, 2025 introduced
significant changes to Form 3CD, the detailed statement
accompanying the tax audit report.
  Form 3CD now requires more comprehensive disclosures, including:
 Compliance with tax provisions.
 Details of loans, deposits, and financial transactions impacting
tax liability.
 Tax deducted at source (TDS) and tax collected at source (TCS)
compliance.
 These amendments aim to improve the quality and scope of audit
reporting, aiding the tax authorities in better scrutiny.

4. Tax Audit Report Forms

 Form 3CA: Used when the taxpayer’s accounts are already audited
under any other law.
 Form 3CB: Used when accounts are not audited under any other law.
 Form 3CD: A detailed statement containing 41 clauses (updated in
2025) covering various aspects of the taxpayer’s financials and
compliance.
 The tax auditor (usually a Chartered Accountant) must submit these
forms to the Income Tax Department by the due date.

5. Due Dates and Penalties

 The due date for filing tax audit reports for FY 2024-25 (AY 2025-26)
is 30th September 2025.
 Failure to comply with audit requirements or late filing attracts
penalties under Section 271B, which can be up to ₹1,50,000.
 Non-compliance may also lead to scrutiny assessments and further
investigations.

6. Tax Investigations: Purpose and Process

 Tax investigations are in-depth inquiries conducted by the Income Tax
Department when there is suspicion of tax evasion, undisclosed
income, or fraudulent transactions.
 Investigations may include:
 Examination of books of accounts, bank statements, and
financial documents.
 Search and seizure operations.
  Interviews and collection of evidence.
 The aim is to detect concealed income and ensure correct tax
payment.

7. Impact of the New Income Tax Bill, 2025

 The bill introduces faceless e-assessment and digital tax audits,
leveraging technology for remote financial tracking and automated
assessments.
 It aims to reduce human interface, increase efficiency, and minimize
harassment.
 Enhanced data analytics and AI tools will be used for risk-based audits
and investigations.

Appeals and Dispute Resolution Mechanisms,

Penalties, and Prosecutions under Income
Tax Law
Tax administration involves not only collection but also resolving disputes
and ensuring compliance through penalties and prosecutions. This article
provides a detailed overview of the appeals process, dispute resolution
mechanisms, and the framework for penalties and prosecutions in India’s
income tax system.

1. Appeals and Dispute Resolution

Mechanisms
a. Hierarchy of Appeals
Taxpayers dissatisfied with orders passed by income tax authorities have the
right to appeal through a multi-tiered system:
 First Appeal: Filed before the Commissioner of Income Tax
(Appeals) [CIT(A)].
 Second Appeal: Filed before the Income Tax Appellate Tribunal
(ITAT).
 Further Appeals: To the High Court and ultimately the Supreme
Court on substantial questions of law.
The ITAT is a quasi-judicial body established in 1941, specializing in direct
tax appeals. It functions under the Ministry of Law and Justice and has
benches across India. ITAT’s decisions on factual matters are final, with
appeals to higher courts limited to legal questions.

b. Filing an Appeal
 Appeals to CIT(A) are filed using Form 35 within 30 days of receiving
the assessment or demand order.
 The appeal fee depends on the assessed income, ranging from ₹250 to
₹1,000.
 CIT(A) has the power to condone delay in filing appeals if reasonable
cause is shown.
 Appeals against CIT(A) orders are filed with ITAT using Form
36 within 60 days of the CIT(A) order.
 Respondents can file cross-objections within 30 days.
 Both parties may be represented by authorized persons during
hearings.

c. Dispute Resolution Panels (DRP)

 Introduced under the Income Tax Act and enhanced in recent reforms,
DRPs allow eligible taxpayers to refer draft assessment orders for
review before finalization.
 The panel aims to resolve disputes without litigation, promoting faster
and amicable settlements.

d. Pendency and Government Initiatives

 India faces significant tax litigation, with appeals often taking 15-20
years for final resolution.
 As of 2024, over 5 lakh appeals were pending at the CIT(A) stage.
 The government’s Central Action Plan (CAP) 2025-26 targets
expedited disposal of over 2 lakh pending appeals to enhance revenue
realization and reduce litigation backlog.

2. Penalties under Income Tax Law

Penalties are imposed to deter non-compliance, concealment of income, and
other violations.
  Penalty for Concealment of Income (Section 270A): Up to 300%
of tax evaded.
 Penalty for Failure to File Return (Section 271F): ₹5,000 if return
is not filed within due date.
 Penalty for Late Filing of Tax Audit Report (Section 271B): Up to
₹1,50,000.
 Penalty for Failure to Maintain Books of Accounts (Section
271A): ₹25,000.
 Penalty for TDS Defaults (Section 271C): 1% per month of tax not
deducted or deposited.
 Other Penalties: For failure to comply with notices, furnishing
inaccurate information, etc.
Penalties are generally imposed after giving the assessee an opportunity to
be heard.

3. Prosecutions under Income Tax Law

Prosecution provisions are aimed at penalizing willful tax evasion or fraud.
 Initiated under Chapter XXII of the Income Tax Act.
 Prosecution can lead to imprisonment ranging from 3 months to 7
years depending on the offense.
 Common grounds for prosecution include:
 Willful attempt to evade tax.
 Failure to produce documents or furnish false information.
 Tampering with evidence.
 Prosecution is generally initiated after penalty proceedings and
requires approval from higher authorities.
 The Income Tax Department has increased prosecution disposal as
part of its enforcement strategy.

Conclusion
The comprehensive study of taxation laws reveals a system that is
continually evolving to balance revenue generation, economic growth, and
social equity. Taxation serves as the backbone of government finance,
enabling the provision of public goods and services while influencing
economic behavior and wealth distribution. The classification into direct and
indirect taxes provides a structured approach to taxing income and
consumption, each with distinct roles and impacts.
The Indian taxation framework, rooted in a rich historical legacy, has
adapted through colonial influences and post-independence reforms to meet
contemporary challenges. Recent developments, including the introduction
of the new Income Tax Bill 2025, signify a major overhaul aimed at
simplifying laws, enhancing transparency, and aligning with global
standards. The dual tax regimes offer taxpayers flexibility, balancing
simplicity with opportunities for deductions and exemptions.
Understanding basic concepts such as assessee, previous year, and
assessment year is fundamental to navigating the tax system. The
categorization of income under five heads ensures systematic computation,
while exemptions, deductions, and rebates provide relief and encourage
savings and investments. Progressive, regressive, and proportional tax
systems reflect different philosophies of equity and efficiency, shaping how
tax burdens are distributed across society.
The procedural aspects of taxation, including filing returns, audits,
assessments, appeals, and dispute resolution, form a comprehensive
compliance ecosystem. These mechanisms are designed to ensure accuracy,
fairness, and accountability, with penalties and prosecutions serving as
deterrents against evasion and fraud. Judicial interpretations through
landmark case laws have further refined tax principles, providing clarity and
guiding enforcement.
Overall, the taxation landscape is moving towards greater digitalization,
simplification, and taxpayer-centric reforms. The new legal frameworks and
administrative processes aim to reduce litigation, enhance compliance, and
foster an environment conducive to economic development. For taxpayers, a
clear understanding of these laws and procedures is essential for effective
tax planning, compliance, and participation in the nation’s growth journey.
Citations and References
1. **Wikipedia - The Income-tax Act, 1961**
Overview of the Income Tax Act, 1961, its history, amendments,
and notable cases including the New Income Tax Bill 2025.
[Link]([Link]
2. **Income Tax Department, Government of India**
Official portal providing the full text of the Income Tax Act,
definitions, provisions, and tax administration details.
[Link]([Link]
[Link])
3. **India Code - The Income-tax Act, 1961 (PDF)**
Official downloadable bare act of the Income Tax Act, 1961 with
arrangement of sections.

[Link]([Link]
[Link])
4. **Indian Kanoon - The Income Tax Act, 1961**
Legal repository with searchable judgments and the full text of
the Income Tax Act.
[Link]([Link]
5. **AdvocateKhoj - Income-Tax Act, 1961 Bare Act**
Full text of the Income Tax Act, 1961 with chapters, sections,
and legal provisions.
[Link]([Link]
ct1961/[Link]?Title=Income-Tax+Act%2C+1961)
6. **IndiaFilings - Income Tax Act 1961 Overview and Provisions**
 Detailed explanation of the Act’s objectives, chapters, key
provisions, and tax compliance requirements.
[Link]([Link]
7. **Bajaj Finserv - Income Tax Act 1961: Meaning, Features and
Provisions**
Summary of the Act including tax slabs, deductions, assessment
procedures, and objectives.
[Link]([Link]
8. **ClearTax - Income Tax Act 1961: Chapters, Objectives,
Features, Provisions**
Overview of the Act’s structure, sections, and key features for
taxpayers.
[Link]([Link]

Citations:
[1] The Income-tax Act, 1961 - Wikipedia
[Link]
[2] Income-Tax Act, 1961 ([Link])
[Link]
[3] [PDF] THE INCOME-TAX ACT, 1961 ARRANGEMENT OF
SECTIONS
[Link]
[Link]
[4] The Income Tax Act, 1961 - Indian Kanoon
[Link]
[5] Income-Tax Act, 1961 | Bare Acts | Law Library - AdvocateKhoj
[Link]
/[Link]?Title=Income-Tax+Act%2C+1961
[6] Income Tax Act 1961: Overview, Objectives, Chapters ... -
IndiaFilings [Link]
1961/
[7] Income Tax Act 1961: Meaning, Features and Provision - Bajaj
Finserv [Link]