The Income Tax Act ("the Act") enjoys the dubious distinction of being the law which has witnessed the highest number of amendments being made to it. It must perhaps be the world's most amended legislation, it having been amended more than 3500 times in 35 years! This makes it a very complicated and haphazard law, resulting in thousands of man-hours of tax-payers and tax-gatherers being wasted every year to interpret the law. We have tried to explain the basics of the Act here, in a non-technical language.

• An Individual:
• A Hindu Undivided Family ( HUF ), which is a type of assessee recognised under the Act, consisting of all persons lineally descended from a common ancestor and deriving income from joint family corpus. Hindu, Jain , Buddhist, and Sikh families have been so recognised.
• A Company
• A Firm
• An Association of Persons or a Body of Individuals
• Artificial Juridical Person, e.g. a Hindu deity

BASIC CONDITIONS

• Presence for more than 182 days in India during the year
  OR
• Presence in India of more then 60 days during the year AND more than 365 days during the previous 4 years
• This period is extended to 182 days in case of persons leaving India during the year for employment abroad

• He should satisfy one of the above two basic conditions in 9 out of 10 preceding years
  AND
• He should be present for 730 days in India in the 7 preceding years

An individual who satisfy one or more of the two basic conditions, but does not satisfy the two additional conditions is treated as a Resident but not ordinarily a resident.

A person who does not satisfy any of the basic conditions becomes a Non-resident

1.Income of the assessee is computed under the following heads:

• Income from Salaries
• Income from House Property
• Profits or gains of Business or Profession
• Capital gains
• Income from other sources

2. Income exempt from tax is reduced from other income. The Act gives a list of Income which are considered exempt from tax. It is a long list, which one is advised to go through before proceeding to compute the income. An example of such exemptions is the exemption pertaining to agriculture income.

3.Deductions allowable under the Act are allowed from the above figure. Deductions are allowed from certain incomes and for certain assessees. An example of such deductions is the deduction from bank interest earned by the assessees.

5.From the tax so calculated, rebates regarding investments made in Government savings like LIC, National Savings Certificates, Provident Funds etc., and rebate for Senior Citizens and other eligible rebate is given.

6.The balance amount is the amount of tax payable. This is reduced by the amount of tax paid as Advance Tax and Tax Deducted at Source , to arrive at the net tax payable.