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Income Tax is a tax you pay directly to the government basis your income or profit. Income tax is collected by the Government of India.

Taxes are of two types – Direct tax and Indirect tax.

Direct tax is the tax paid by you on your income directly to the government and is levied on profits and income. However, indirect tax is the tax levied on

goods and services and is collected by someone else on your behalf and is paid to the government. For example, goods & services tax (GST) is what you pay in a restaurant and is an indirect tax, whereas Income Tax that is deducted from your salary every month in the form of TDS, is an example of direct tax.

The money collected by the direct tax route is used by the Government for infrastructural developments and, also, to pay the employees of central and state government bodies.

Income Tax Act of India was passed in 1961. This Act governs the provisions for income tax as well as the various deductions that are applicable to it.

The legislature introduced the Income Tax Act 1961, to govern and administer income tax in the country. However, in the year 1962, the income tax rules were created in order to help in the enforcement and application of the law constituted in the Act. Moreover, one can only read the income tax rule in combination with the Income Tax Act. The Income Tax Rules are made within

the structure of the Income Tax Act and is not allowed to overrule its provisions.

The following persons that generate income are liable to pay direct taxes:

  1. Individual
  2. Hindu Undivided Family (HUF)
  3. Body Of Individuals (BOI)
  4. Association of Persons (AOP)
  5. Local Authorities
  6. Corporate firms
  7. Companies
  8. Artificial Juridical Persons

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