The levy of income tax is governed by the Income-Tax Act, 1961. This is an enormously complex legislation running into over 300 Sections with several subsections. The Act undergoes changes every year with additions and deletions brought out through a Finance Act passed by the Parliament1.

Broadly, income has been divided into five categories:

I. Income from salary
II. Income from house property
III. Profits and gains of business or profession
IV. Capital gains
V. Income from other sources (including dividends, interest from securities, interest income and income from winning of lotteries).

The tax incidence on the income of assesses is determined by their residential status. Different rates of taxes are applicable to the income of individual and non-individuals. The general rules of taxation on income are:

• Resident taxpayers are taxed on their worldwide income.
• Nonresident taxpayers are taxed only on income received in India or on income arising (or deemed to arise) in India.
• Corporate income is taxed both at corporate level and to shareholders upon distribution as dividends.
• The accounting year for tax purposes is April 1 to March 31.
• Double taxation relief is offered to residents through credits under the Income Tax Act and under the tax treaties.