Simplified summary for each section and subsection in plain, easy-to-understand English

This law is called the Income-tax Act, 1961. It applies to the entire country of India and came into effect on April 1, 1962, unless stated otherwise within the Act.

Here’s a simplified summary for each section and subsection in plain, easy-to-understand English:

Section 2: Definitions

This section explains important terms used in the Act:

(1) Advance Tax:

Tax that must be paid in advance as per the rules in Chapter XVII-C.

(1A) Agricultural Income: Includes:

· Rent or revenue from land in India used for farming.

· Income from farming activities, processing farm produce for the market, or selling farm produce without further processing.

· Income from buildings near such land, used for farming-related purposes (e.g., housing for farmers or storage).

Proviso:

To qualify as agricultural income:

1. The building must be near the land and used due to its farming connection (e.g., as a residence or storage).

2. The land must be taxed as agricultural land or be in a rural area, not near urban zones or large populations.

Explanations:

· Revenue from selling land or buildings isn’t agricultural income.

· Income from using such land/buildings for non-agricultural purposes (e.g., renting) isn’t agricultural income.

· Growing saplings or seedlings in a nursery is considered agricultural income.

(1B) Amalgamation (Mergers): When companies merge into one, with all assets, liabilities, and shareholders of the merging companies becoming part of the new or existing company.

(1C) Additional Commissioner: An officer appointed under Section 117 to assist in tax matters.

(1D) Additional Director:

An officer appointed under Section 117 to handle specific tax-related duties.

(2) Annual Value (of Property): The value of property calculated under Section 23 for tax purposes.

(4) Appellate Tribunal:

A tribunal established under Section 252 to handle tax disputes.

(5) Approved Gratuity Fund:

A fund approved by tax authorities to provide gratuity benefits to employees, as per rules in the Fourth Schedule.

(6) Approved Superannuation Fund:

A retirement fund approved by tax authorities as per rules in the Fourth Schedule.

(7) Assessee: A person responsible for paying tax or involved in tax proceedings. Includes:

· People assessed for their own or others' income, losses, or refunds.

· People treated as defaulters under the Act.

(7A) Assessing Officer: The officer responsible for assessing taxes, including Assistant, Deputy, or Joint Commissioners and Directors as defined in Section 120.

(8) Assessment: The process of calculating taxes, including reassessments.

(9) Assessment Year: The 12-month period starting on April 1 each year, during which income is assessed.

(9A) Assistant Commissioner: An officer appointed under Section 117 to assist in tax administration.

(9B) Assistant Director:

An officer appointed under Section 117 to handle specific tax-related duties.

(10) Average Rate of Income Tax:

The total income tax divided by the total taxable income.

(11) Block of Assets:

A group of similar assets (e.g., buildings, machinery, patents) classified for depreciation purposes.

(12) Board:

The Central Board of Direct Taxes (CBDT), which oversees tax administration.

(12A) Books of Account:

Includes all records of financial transactions, whether written or digital, stored electronically or as printouts.

This is a condensed and user-friendly explanation of the definitions provided in Section 2 of the Income Tax Act. Let me know if you need further details!

Here’s a simplified summary for each section and subsection in plain, easy-to-understand English:

(13) Business:

Covers all activities related to trade, commerce, manufacturing, or any similar ventures.

(13A) Business Trust:

Refers to specific types of trusts registered under SEBI regulations:

1. Infrastructure Investment Trusts (InvITs).

2. Real Estate Investment Trusts (REITs).

(14) Capital Asset:

Generally means any property owned by a person, but excludes:

· Items like stock-in-trade (except securities held by foreign investors).

· Personal items used by the person or their family (except jewelry, art, or collectibles).

· Agricultural land located in rural areas.

· Specific government-issued bonds and certificates like Gold Bonds and Special Bearer Bonds.

Explanation:

Property includes rights related to Indian companies, such as management or control rights.
"Foreign Institutional Investor" and "securities" are defined under other laws.

(15) Charitable Purpose:

Includes activities such as:

Helping the poor.
Promoting education or yoga.
Providing medical aid.
Protecting the environment, forests, or wildlife.
Preserving historical or artistic sites.
Any public utility activity.

Proviso:

Activities related to trade, commerce, or business don’t count as charitable unless:

They are part of public utility purposes.
Their income doesn’t exceed 20% of the trust or institution’s total income.

(15A) Chief Commissioner:

An officer appointed under Section 117 to oversee tax administration.

(15B) Child:

Includes a step-child or adopted child in relation to an individual.

Commissioner Definitions

(16) Commissioner: Refers to senior tax officers like Commissioner, Director, Principal Commissioner, or Principal Director of Income-tax, appointed under section 117(1).
(16A) Commissioner (Appeals): A Commissioner who handles appeals in tax cases, also appointed under section 117(1).

Company Definitions

(17) Company: Includes:

(i) Indian companies.
(ii) Foreign entities incorporated outside India.
(iii) Bodies previously assessed as companies under past laws.
(iv) Any organization declared as a company by the tax board for specific assessment years.

(18) Publicly Interested Company: A company considered to involve public interest, including:

Government-owned or Reserve Bank shares ≥ 40%.
Registered under certain sections of the Companies Act.
Declared by authorities based on membership structure.
Mutual benefit finance companies like Nidhis.
Listed on stock exchanges or with significant public/government shareholding.

Cooperative Society

(19) Cooperative Society: Registered under laws like the Co-operative Societies Act or similar state laws.

Deputy Commissioner

(19A) Deputy Commissioner: Appointed as per section 117(1).

Demerger Definitions

(19AA) Demerger: A company’s division into parts, transferring undertakings to another company. Includes conditions about asset and liability transfers, shareholder rights, and government rules.

Includes explanations on specific terms like “undertaking” and conditions for deemed demergers (e.g., in public sector companies).

(19AAA) Demerged Company: The company that splits and transfers parts of its business to another.

Other Deputy Roles

(19B) Deputy Commissioner (Appeals): Appointed for tax appeals under section 117(1).
(19C) Deputy Director: Another senior tax role under section 117(1).

Company Officers

(20) Directors and Managers: Defined per the Companies Act, 1956.

Director General Roles

(21) Director General/Director: Includes Principal, Additional, Joint, or Assistant roles in Income-tax.

Dividend Definition

(22) Dividend: Distributions made by companies to shareholders, including:

Profit distributions (including liquidation profits).
Bonus shares or payments beyond fixed dividends.
Loans or advances treated as dividends if linked to profit distribution.

Exclusions: Includes certain legitimate business transactions, specific distributions during mergers, or bonus shares under conditions.

Domestic Company

(22A) Domestic Company: An Indian company or one that declares dividends within India.

Document and Trusts

(22AA) Document: Includes electronic records as defined by IT laws.
(22AAA) Electoral Trust: A trust approved by the Board for electoral purposes.

Fair Market Value

(22B) Fair Market Value: Market price of an asset, or a value determined by rules when the market price is unclear.

Firm, Partner, Partnership

(23) Firm, Partner, and Partnership: Defined by the Indian Partnership Act and includes LLPs (Limited Liability Partnerships).

Foreign Company

(23A) Foreign Company: Any company not classified as a domestic company.

Fringe Benefits

(23B) Fringe Benefits: Additional perks covered under section 115WB.

Hearing

(23C) Hearing: Includes electronic data and document communication.

Summary of Sections

Section 24: Definition of "Income"

Subsection (i): Income includes profits and gains made by a person or entity.

Subsection (ii):Income also includes dividends received.

Subsection (iia):Income includes voluntary contributions received by a trust created for charitable or religious purposes, certain institutions, funds, universities, hospitals, or electoral trusts.

Subsection (iii):

Includes perquisites or profits instead of salary, as per specific sections in tax laws.

Subsection (iiia):

Any special allowance or benefit granted to cover the costs related to performing office duties is also considered income.

Subsection (iiib):

Any allowance granted to meet personal expenses, including the cost of living adjustments, is part of income.

Subsection (iv):

Income includes benefits or perks (monetary or not) received from a company, including directors, their relatives, or persons with substantial interest.

Subsection (iva):

Income includes benefits or perks obtained by a representative or the beneficiary for whom income is received, including any related payments.

Subsection (v):

Income also includes sums taxed under specific sections related to business activities.

Subsections (va) to (vc):

Includes income taxed under various provisions of sections dealing with specific types of income.

Subsection (vi):

Capital gains from the sale of assets are part of income.

Subsection (vii):

Income includes profits from mutual insurance companies or co-operative societies in accordance with relevant sections.

Subsection (viia):

Profits from co-operative societies engaged in banking or credit activities are considered income.

Subsection (viii):

A previous clause that was omitted in 1988.

Subsection (ix):

Income also includes winnings from gambling, lotteries, card games, and similar activities, including specific game shows.

Subsections (x) to (xi):

Includes sums received as employee contributions to welfare funds and sums received from keyman insurance policies.

Subsections (xii) to (xvii):

Income includes various sums referred to in different tax sections, such as inventory value, property value, compensation, or payments exceeding certain fair market values.

Subsection (xviii):

Assistance such as grants, subsidies, cash incentives, or duty waivers from the government or related agencies is considered income, unless it falls under specific exemptions.

Section 25: Definition of "Income-tax Officer"

An Income-tax Officer is a person appointed under section 117 of the Income Tax Act to handle taxation matters.

Section 25A: Definition of "India"

India refers to the country's territorial area, including land, territorial waters, seabed, airspace, and maritime zones as defined by the Constitution and the Territorial Waters Act of 1976.

Summary of Sections

Section 26: Indian Company

An Indian company refers to a company formed and registered under the Companies Act, 1956, and includes:

(i): Companies formed under earlier laws in India (excluding Jammu & Kashmir and specific Union territories).
(ia): Corporations established by Central, State, or Provincial Acts.
(ib): Institutions or bodies declared as companies by the tax board.
(ii): Companies formed under laws applicable in Jammu & Kashmir.
(iii): Companies formed under laws applicable in certain Union territories (e.g., Dadra and Nagar Haveli, Goa).
Proviso: The main office must be in India.

Section 26A: Infrastructure Capital Company

A company that invests in shares or provides long-term funding for projects like housing, infrastructure, hospitals (100+ beds), or 3-star hotels.

Section 26B: Infrastructure Capital Fund

A fund set up via a trust deed to raise money for investments in similar projects as mentioned in Section 26A.

Section 28: Inspector of Income-Tax

An Inspector of Income-Tax is appointed under Section 117 to carry out tax duties.

Section 28A: Interest

Interest includes any payment for borrowed money or debt, service fees, or charges on unused credit facilities.

Section 28B: Interest on Securities

Interest earned from:

(i) Government securities.
(ii) Debentures or securities issued by local authorities or companies.

Section 28BB: Insurer

An Indian insurance company registered under the Insurance Act, 1938.

Section 28C: Joint Commissioner

A Joint Commissioner handles tax duties under Section 117.

Section 28CA: Joint Commissioner (Appeals)

Similar to the Joint Commissioner but focuses on appeals.

Section 28D: Joint Director

A Joint Director of Income-Tax manages specific tax responsibilities under Section 117.

Section 29: Legal Representative

Defined as per the Civil Procedure Code, 1908, for handling legal matters.

Section 29A: Liable to Tax

A person who is legally obligated to pay income tax in a country, even if later exempted.

Section 29AA: Long-Term Capital Asset

A capital asset held for a period longer than specified for short-term assets.

Section 29B: Long-Term Capital Gain

Profit from selling a long-term capital asset.

Section 29BA: Manufacture

Transforming or creating a new object with distinct features, structure, or chemical composition.

Section 29C: Maximum Marginal Rate

The highest income tax rate (including surcharges) applicable to the top income slab.

Section 29D: National Tax Tribunal

A tribunal established under the National Tax Tribunal Act, 2005.

Section 30: Non-Resident

A non-resident is someone not ordinarily residing in India under specific tax clauses.

Section 31: Person

A person includes individuals, families, companies, firms, associations, local authorities, or any artificial legal entities.

Section 32: Substantial Interest in a Company

A person owning at least 20% of voting power in a company.

Section 33: Prescribed

Refers to rules made under the Income Tax Act.

Section 34: Previous Year

Defined in Section 3, it refers to the year preceding the assessment year.

Section 34A-34D: Senior Tax Officials

Refers to positions like Principal Chief Commissioner, Principal Commissioner, Principal Director, and Principal Director General appointed under Section 117.

Section 35: Principal Officer

A person managing a local authority, company, or association who is notified as the officer responsible for tax matters.

Section 36: Profession

Includes any vocation.

Section 36A: Public Sector Company

A government company or corporation established by law.

Section 37: Public Servant

Defined as per the Indian Penal Code, covering government officials and employees.

37A) "Rate or Rates in Force"

This section defines the "rate or rates in force" for different situations related to income-tax calculations. It covers:

Income-tax Calculations: The applicable rates of income-tax for various sections, such as income from salaries, advance tax, or specific sections like 115A, 115B, etc.
Tax Deductions: The applicable rates for tax deductions under various sections, such as sections 193, 194A, and others.
International Tax Agreements: The tax rates specified in international agreements or under section 90 or 90A.

38) "Recognised Provident Fund"

A "recognised provident fund" refers to a provident fund that has been approved by the tax authorities according to specific rules, including those under the Employees' Provident Funds Act of 1952.

39) Omitted by Finance Act, 1992

This section has been removed, starting from April 1, 1993.

40) "Regular Assessment"

A "regular assessment" refers to the tax assessment process carried out under sections 143(3) or 144.

41) "Relative"

This defines who is considered a "relative" in relation to an individual—spouse, siblings, parents, or children.

41A) "Resulting Company"

A "resulting company" is one that is formed through a demerger and receives assets from the original company. The shareholders of the original company receive shares in the resulting company.

42) "Resident"

A "resident" is a person who is considered a resident of India as defined under section 6.

42A) "Short-Term Capital Asset"

This defines a short-term capital asset as an asset held for less than 24 months. Special conditions apply to assets like listed securities, equity-oriented funds, and others, which have shorter holding periods. It also includes specific provisions for different asset types like shares, mutual funds, or bonds.

42B) "Short-Term Capital Gain"

This is the capital gain earned from selling a short-term capital asset.

42C) "Slump Sale"

A "slump sale" refers to the sale of a business or an undertaking for a lump sum without assigning individual values to the assets and liabilities.

43) "Tax"

This defines "tax" as income-tax payable under the provisions of the Income Tax Act, and includes super-tax and fringe benefit tax (for years after April 1, 1965).

43A) "Tax Credit Certificate"

A "tax credit certificate" is a certificate issued under Chapter XXII-B, which helps to claim tax credits.

44) "Tax Recovery Officer"

A "Tax Recovery Officer" is an authorized income-tax officer who is empowered to recover taxes owed.

45) "Total Income"

"Total income" refers to the total income as defined under section 5 of the Income Tax Act.

47) "Transfer"

This section defines "transfer" in relation to a capital asset, which includes actions like sale, exchange, conversion to stock-in-trade, compulsory acquisition, and other scenarios, including those involving immovable property or shares.

47A) "Virtual Digital Asset"

This defines virtual digital assets as any digital representations of value (e.g., cryptocurrency or NFTs) that can be traded electronically. The government may specify or exclude certain digital assets from this definition.

48) "Zero Coupon Bond"

A "zero coupon bond" is a bond issued without periodic interest payments. Instead, it is sold at a discounted price and redeemed for its full value at maturity. The bonds are typically issued by public sector companies or infrastructure-related funds.

Simplified summary for each section and subsection in plain, easy-to-understand English