NRI Income Tax & Compliance

Income Tax Act 1961: Chapters, Objectives, Features, Provisions

autohr img By Ritesh Jain | Last Updated : 16 Dec, 2025

Income Tax Act 1961
Table of Contents

The Income Tax Act, 1961, is a cornerstone of the taxation framework of India. It comprises a comprehensive set of tax rules, sections, and chapters. These further help in managing the levying, collection, recovery, and administration of income taxes. Additionally, the act contains provisions associated with the calculation of income, exemptions, deductions, and tax rates. 

To help you understand better, in this blog, we will learn everything about the Income Tax Act 1961, such as its key features, major provisions, components, and more. So, let's begin reading. 

Key Takeaways
  • The Income Tax Act, 1961, is the central law governing the levy, collection, and administration of the direct tax across India. 
  • The Act has 298 sections along with sub-sections, 23 chapters, and 14 schedules, which cover all the aspects of Indian taxation.
  • The Act navigates a progressive tax system, where individuals and businesses with higher incomes pay tax at higher rates. It aims to reduce the inequality of income and promote economic justice.
  • The tax liability of the person depends on the residential status and the source of income.
  • For anyone earning income in India, above the basic exemption limit, paying income tax is a legal obligation. For tax evasion and non-compliance, the Act outlines tax penalties and prosecution.

Key Highlights

  • From 1 April 2026, the new Income Tax Act, 2025, will come into effect. It will align the law with the current economic and technological developments. Additionally, it will also eliminate the redundant provisions.
  • The income tax is generally calculated based on applicable slab rates of the taxpayers, with the option to select between the old and new tax regimes.
  • Under the old and new tax regimes, the Income Tax Act provides several tax deductions and exemptions.

What Is the Income Tax Act 1961?

The Income Tax Act 1961 in India manages the levy, collection, and administration of direct taxes in India. It applies to all individuals, regardless of whether they are Indian citizens or not, earning income in India. Under this law, taxpayers at prescribed rates are liable to pay direct taxes. Considering this:

  • The Income Tax Act, 1961, applies to the whole of India. 
  • The Income Tax Act officially contains 298 sections, but with many sub-sections like 80AC, 115JB, and more, the actual count of the provisions is often stated as being over 700 or even 800. Additionally, it has 23 chapters and 14 schedules. 
  • Additionally, every year, the Annual Finance Act is passed by the parliament, thereby amending the act to fulfill the requirements of changing economic circumstances. 

In simple words, the Income Tax Act is imposed by the Indian government on income earned by individuals and companies from several sources, such as salary, house property, profession/business, capital gains, and others.

So, this was all about the Income Tax Act, 1961. Moving ahead, let's know the key features of the act. 

Key Features of the Income Tax Act, 1961

The key features of the Income Tax Act 1961 are as follows:

Key Features of the Income Tax Act

  • As mentioned above, it is a type of direct tax that is required to be borne by the taxpayer. Additionally, you cannot transfer to another individual.
  • The income tax is controlled by the Central Government of India.
  • It is imposed on the income earned by the taxpayer in the previous year.
  • Tax is calculated based on the income tax slab of the assessee.
  • To make the rich and economically powerful individuals pay taxes at higher rates, the government imposed a progressive tax rate on income.
  • In certain cases, per financial year, at the maximum limit, tax deduction is applied. 

These were the key features of the Income Tax Act, 1961. Moving further, let's know the major provisions under this act. 

Major Provisions Under the Income Act

The Income Tax Act, 1961, consists of several provisions. Considering this, on the following grounds, these provisions can be widely classified:

Ground of Classification Explanation
Meaning and definitions This part consists of the meaning of several terms mentioned in the act. Considering this, in the definition section is any term that is not stated, the general conventions of interpretation of statutes apply.
Machinery provisions The mentioned provisions state the method to determine the income, expenses, or the value of an asset.
Levying provisions These provisions deal with the taxation part, specific tax rates, surcharge, cess, and other levies. 
Assessment provisions When the department wants to know the income to certify that no income has evaded taxation. After detailed examination of explanations and evidence given by the taxpayer, an assessment order is passed.
Penal Provisions These provisions work with the consequences of not following the provisions of the Income Tax Act.

This was an overview of the major provisions of the Income Tax Act, 1961. Moving ahead, now, let's know about the components of the tax law. 

Components of Indian Income Tax Law

The components of the Indian Income Tax Law are as follows:

  • The Income Tax Act: It covers the assessee, the income of the assessee, taxation, exemptions, and deductions.
  • Annual Finance Act: The Annual Finance Act is divided into four parts. Additionally, through the Annual Finance Act, several changes took place in the income tax law.
  • Income Tax Rules: Rules help in the functioning of the provisions and purpose of the Income Tax Act.
  • Circulars and Notifications: Circulars and notifications are issued periodically to identify the difficulties and ambiguities faced by the department and taxpayers. Considering this, circulars are binding on the tax department, and the taxpayers can use them in his/her favour. However, notifications are binding on both the taxpayer and the department.
  • Judicial Pronouncements: Previous Judgements issued by the tribunals and courts can be used to interpret the tax law when, in certain parts, the act is ambiguous or silent.

These were the components of the Indian Income Tax Law. Moving further, let's know the scope of the Income Tax Act, 1961.

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Scope of the Income Tax Act, 1961

The tax liability of an individual under the Income Tax Act, 1961, is based on the Residential Status and source of income of the assessee. Considering this, based on the residency, there are three types of taxpayers in India. These are as follows:

  • Resident and Ordinarily Resident (ROR)
  • Resident but Not Ordinarily Resident (RNOR)
  • Non-Resident Indian (NRI)

Further, for each group, the different types of income earned in India are taxed differently. Let's understand it through the table below:

Type of Income Resident and Ordinarily Resident (ROR) Resident but Not Ordinarily Resident (RNOR) Non-Resident Indian (NRI)
Income earned in India (Accured) Taxable Taxable Taxable
Income received or considered received in India Taxable Taxable Taxable
Income from foreign bought into India (earlier earned) Not taxable Not taxable Not taxable
Income earned outside India from a profession/ business inside India Taxable Taxable Not taxable
Income earned outside India from a profession/ business outside India Taxable Not taxable Not taxable

This is how, based on the residential status and source of income, under the Income Tax Act, taxpayers pay tax in India. Moving ahead, now, let's know the chapter of the Income Tax Act. 

Chapters of the Income Tax Act Explained

In the Income Tax Act, there are a total of 23 chapters. In this, some chapters also have some subparts. To help you understand better, the table below explains the chapters of the Income Tax Act.

Chapters of the Income Tax Act Overview
Chapter I Introduction of the Income Tax Act, along with its overview.
Chapter II The beginning and scope of the Income Tax Act.
Chapter III Income that is not part of the gross income.
Chapter IV Calculation of the total income.
Chapter V Other income sources of individuals, which form a part of the income of the assessee, such as business properties, capital gains, and more.
Chapter VI Aggregation of income set off and carry forward of loss.
Chapter VIA Tax deductions are applicable while calculating gross income.
Chapter VIB Restrictions on specific tax deductions for companies.
Chapter VII Parts of gross income on which tax is not applicable.
Chapter VIII Applicable reliefs and rebates while calculating income tax.
Chapter IX Contains information on double taxation relief.
Chapter X Special circumstances when assessees are liable to pay income tax.
Chapter XA For income tax, general anti-avoidance rules.
Chapter XI On undistributed profits, additional tax implications.
Chapter XII Tax calculation rules in special cases.
Chapter XIIA Special rules on specific Non-Resident Indian (NRI) income.
Chapter XIIB For certain companies, special tax provisions. 
Chapter XIIBA For certain limited liability partnerships, special tax provisions apply.
Chapter XIIBB Special tax rules apply when the Indian branch of a foreign bank is converted to a subsidiary company.
Chapter XIIBC Special tax rules apply to companies located in India.
Chapter XIIC Special tax rules for retail trade.
Chapter XIID Special tax rules for the profits distributed by companies.
Chapter XIIDA Special tax rules for the income distributed by domestic companies for purchasing back shares. 
Chapter XIIE Special tax rules for income distributed.
Chapter XIIEA Special tax rules for income distributed by securitisation trusts.
Chapter XIIEB Special tax rules for the accredited income of specific trusts and institutions.
Chapter XIIF Special tax rules for income earned from venture capital companies and venture capital funds.
Chapter XIIFA Special tax rules for business trusts.
Chapter XIIFB Special tax rules for the income of the investment fund scheme and the income generated from it.
Chapter XIIG Special tax rules for the income of shipping organisations. 
Chapter XIIH Tax imposed on fringe benefits. 
Chapter XIII Information of Income Tax Officials.
Chapter XIV Process of income tax assessment.
Chapter XIVA Special rules for avoiding repeated pleas. 
Chapter XIVB Special rules for assessing search cases. 
Chapter XV Tax obligations in special cases.
Chapter XVI Special tax rules applicable to firms.
Chapter XVII Rules of tax collection and recovery.
Chapter XVIII In specific cases, tax relief on dividend income.
Chapter XIX Tax refunds
Chapter XIXA Case settlements
Chapter XIX-AA Role of the Dispute Resolution Committee in specific cases.
Chapter XIXB Advance rulings
Chapter XX Appeals and revision
Chapter XXA In special transfer cases, the acquisition of immovable property is made to prevent tax evasion.
Chapter XXB Mode of repayment or accepting payments in special cases to counteract tax evasion. 
Chapter XXC In certain transfer cases, the purchase of immovable property by the central government.
Chapter XXI Imposable penalties
Chapter XXII Prosecutions and punishable offences.
Chapter XXIB Certificates of tax credit.
Chapter XXIII Miscellaneous

These were the chapters of the Income Tax Act, 1961. Moving further, now let's know the advantages of the tax act. 

Advantages of the Income Tax Act, 1961

The key advantages of the Income Tax Act, 1961 are as follows:

Advantages of the Income Tax Act

Price Stability

By providing regulations for direct taxes, the IT Act helps in maintaining price stability in the Indian economy. Considering this, it serves as a way to control private spending, thereby keeping a check on the commodity price inflation.

Full Employment

To promote higher demand for goods and services, the act helps in reducing the income tax rates. This, in turn, helps boost the employment opportunities, therefore fulfilling the objectives of complete employment. 

Non-Revenue Objectives

Compared to the poor individuals, a higher tax rate is imposed on the rich and powerful people. In this way, the Income Tax Act promotes a progressive taxation system. Considering this, among the citizens, it helps in determining the wealth equality, carrying out its non-revenue objective. 

Control of Cyclical Fluctuations

When the economy of India is in a boom, the rates of income tax are increased, and during the time of recession, they are reduced. In this way, the Income Tax Act in the value of money maintain complete control over cyclical fluctuations. 

These were some of the advantages of the Income Tax Act, 1961. Moving ahead, let's know about the Income Tax Bare Act. 

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Income Tax Bare Act- PDF Download

As amended by the Finance Act 2025, download the Income Tax Act. 

Final Thoughts

Lastly, the Income Tax Act, 1961, is a foundation structure for the administration of the income tax in India. It provides guidelines and clarity on several tax-related issues. The act not only provides its support to the fiscal policies of the government but also provides significant benefits to its taxpayers. 

However, without proper knowledge, understanding, and maintaining compliance with the act is very difficult, especially for an NRI. Therefore, it is better to take the help of tax professionals like Savetaxs to solve your tax-related queries. Our tax experts help you resolve your tax issues by navigating through different tax provisions. So, connect with us today and get tax advice. 

Note: This guide is for information purposes only. The views expressed in this guide are personal and do not constitute the views of Savetaxs. Savetaxs or the author will not be responsible for any direct or indirect loss incurred by the reader for taking any decision based on the information or the contents. It is advisable to consult either a CA, CS, CPA or a professional tax expert from the Savetaxs team, as they are familiar with the current regulations and help you make accurate decisions and maintain accuracy throughout the whole process.

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Ritesh Jain (Tax Expert)

Mr. Ritesh has 20 years of experience in taxation, accounting, business planning, organizational structuring, international trade financing, acquisitions, legal and secretarial services, MIS development, and a host of other areas. Mr Jain is a powerhouse of all things taxation.

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Frequently Asked Questions

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The first Income Tax Act in India was introduced by Sir James Wilson in February 1860. He was the first finance minister of British India.

There are 298 sections, 23 chapters, and 14 schedules in the Income Tax Act 1961.

The main objective of the Income Tax Act 1961 is to promote full employment, price stability, economic development, control cyclical fluctuations, reduce BOP difficulties, and achieve non-revenue objectives.

Income tax can be defined as the tax collected by the Central Government each fiscal year, levied on the gross income of a taxpayer during the preceding year.

A direct tax, based on their income, is paid by individuals and entities. The tax is directly paid by the taxpayer to the government, meaning the accountability and impact of the tax depend on that individual or entity.

Under the Income Tax Act, 1961, there are five types of income. These are income from salary, income from house property, income from capital gains, income from profits and gains from business or profession, and income from other sources.

The Income Tax Act, 1961, came into effect in India from 1 April 1962.

The financial year can be defined as the year in which income is earned by the taxpayer, and the assessment year is the year following the financial year in which the earned income is evaluated and taxes are paid on it. For example, if the financial year is 2025-26, the assessment year will be 2026-27.