The Income-tax Act, 1961 is a comprehensive Act (statute) of the Parliament of India that governs the levy, administration, collection, and recovery of direct tax on income. It was enacted to consolidate and amend the law, replacing the complex Indian Income Tax Act, 1922. The Act received the President's assent on September 13, 1961, and came into force on April 1, 1962.
The Act establishes a progressive tax system and is administered by the Central Government through the Central Board of Direct Taxes (CBDT), which was formed in 1963. It contains 23 chapters and 298 sections, outlining the mechanism for taxation. Income is classified under five heads: Salary, House Property, Capital Gains, Profits and Gains from Business or Profession, and Income from Other Sources. Tax is levied on the income earned in the Previous Year and assessed in the subsequent Assessment Year. Key provisions include deductions under sections like 80C and 80D, and mechanisms for tax collection like TDS (Tax Deducted at Source).
The Act is closely connected to the annual Finance Act, which introduces amendments, including changes to tax slabs and rates. A significant recent change was the introduction of the New Tax Regime under Section 115BAC, which became the default regime from Assessment Year 2024-25, offering lower rates in exchange for fewer deductions. However, the Income-tax Act, 1961, is being replaced by the Income-tax Act, 2025, which will come into effect on April 1, 2026, to create a simplified and modern tax code. The new Act will replace the terms 'previous year' and 'assessment year' with the single term 'tax year'.