Income tax
Also written Income Tax Act, 1961
The tax every individual, HUF and other assessee pays on annual income under the Income Tax Act, 1961, with deductions available under sections such as 80C, 80CCD(1B), 80D, 80G, 80TTA and 24.
In plain language
Income tax is the share of your income you pay to the government, so it can fund things like infrastructure and government salaries. It is charged under one law: the Income Tax Act, 1961, as amended by later Finance Acts each year.
A wide range of people and entities must pay it — every individual, a Hindu Undivided Family, an Association of Persons, a Body of Individuals, companies, local authorities, and every other "artificial juridical person" that earns income.
The tax year has two names in the law. The Previous Year is the year in which you actually earn the income — 1 April to 31 March. The Assessment Year is the following year, in which that income is charged to tax.
How it works
The booklet lists six deduction sections a taxpayer should know:
| Section | What it covers |
|---|---|
| 80C | Life insurance, provident fund, ELSS, 5-year special bank deposits, NPS Tier I contributions, NSC, housing loan principal repayment, etc. |
| 80CCD(1B) | NPS investment, over and above the Section 80C limit |
| 80D | Medical insurance for self, spouse, dependent parents and dependent children |
| 80G | Donations to National Children's Foundation, recognised educational institutions, the Prime Minister's Relief Fund, and other charitable institutions |
| 80TTA | Interest on a savings bank account, for an individual or HUF only, on accounts with a bank, post office or co-operative bank, subject to limits specified from time to time |
| 24 | Interest on a housing loan for acquisition, construction or repair, applicable to loans availed after 1 April 1999 |
The booklet states the last date to file an Individual's Income Tax Return is 31 July of each financial year, while flagging that filing dates and deduction details change and should be checked against current government provisions.
A worked example
Rajat, a salaried individual, earns income during the year 1 April 2024 to 31 March 2025 — his Previous Year. That income is taxed in the following year, 2025-26, his Assessment Year.
During the Previous Year, he invests Rs 1,50,000 across life insurance premium and ELSS, claiming the full Section 80C limit. He separately invests Rs 50,000 into his NPS Tier I account, claiming an additional deduction under Section 80CCD(1B), over and above his 80C claim. He also pays Rs 22,000 in medical insurance premium for his parents, claimed under Section 80D.
Rajat repays Rs 60,000 of housing loan principal (inside his 80C limit) and pays Rs 1,90,000 of housing loan interest, claimed separately under Section 24, since his loan was taken in 2019, well after the 1 April 1999 cutoff. He must file his return by 31 July 2025.
Why NISM asks about it
Chapter 10 (Tax Saving Options) is built almost entirely around this section-by-section deduction table, following the Previous Year/Assessment Year definitions. Expect the exam to match a deduction to its correct section, and to test the 31 July filing deadline and the 1 April 1999 Section 24 cutoff.
Common exam traps
- Section 80CCD(1B) is over and above Section 80C, not part of the same combined limit — a common point tested directly.
- Section 80TTA applies only to an individual or HUF, on savings account interest with a bank, post office or co-operative bank — not a firm, company, AOP or BOI, even though those also pay income tax under the same Act.
- The Previous Year is when income is earned; the Assessment Year is when it is taxed — reversing the two is a classic error.
- 31 July is the filing deadline the booklet states for an individual, though it also warns this and other dates and limits change and should be checked against current provisions — never assume the booklet's figure is still current without verifying.
- Section 24's 1 April 1999 cutoff applies specifically to the interest deduction, not to the Section 80C principal deduction, which carries no such date restriction in the booklet's text.
Check yourself
1.Which law governs the provisions for income tax in India?
- a)The Companies Act, 2013
- b)The Income Tax Act, 1961, as amended by subsequent Finance Acts
- c)The SEBI Act, 1992
- d)The Credit Information Companies (Regulation) Act, 2005
Show the answer
Answer: (b) The Income Tax Act, 1961, as amended by subsequent Finance Acts
"ALL TAXES ARE LEVIED BASED ON THE PASSING OF A LAW, and the law that governs the provisions for our income tax is the INCOME TAX ACT (IT ACT), 1961 AS AMENDED BY SUBSEQUENT FINANCE ACTS." Two things follow from that sentence and both are examinable. First, the principle that no tax exists without a law is why this entire chapter is organised by section number rather than by product — a benefit somebody describes without a section behind it does not exist. Second, the phrase "as amended by subsequent Finance Acts" explains why the amounts change every year while the section numbers stay put, and why the chapter closes by warning that the details are "subject to change." Income tax funds government expenditure — the chapter names "infrastructural development" and "the salaries of those employed by the state or central governments."
2.What does the chapter state as the last date for an individual to file an income tax return, and what caveat does it add?
- a)31 March, and the date is fixed permanently by the Income Tax Act
- b)31 July, with the caveat that dates and other details are subject to change and readers should check the latest provisions
- c)31 December, with no caveat
- d)30 September, and only for those claiming deductions
Show the answer
Answer: (b) 31 July, with the caveat that dates and other details are subject to change and readers should check the latest provisions
"The last date to file Income Tax Returns for an Individual is 31st JULY of each financial year." Do not confuse it with 31 March, which is the end of the previous year — the deadline for making tax-saving investments, not for filing the return that reports them. The caveat is the chapter's own, and it is the most candid paragraph in the booklet: "However, the relevant dates for filing income tax returns and other deductions and details related to Income Tax Act are SUBJECT TO CHANGE; therefore, readers are advised to REGULARLY CHECK LATEST PROVISIONS AND GUIDELINES ISSUED BY GOVERNMENT FROM TIME TO TIME." Tax detail ages faster than any other content in personal finance — India has since introduced an alternative regime with lower slab rates under which most of these deductions are unavailable — but the architecture of a section for every benefit is unchanged.
3.What is the difference between the previous year and the assessment year?
- a)The previous year is the year before last; the assessment year is the current year
- b)The previous year is the year in which income is earned; the assessment year is the year in which it is charged to tax
- c)The previous year is when tax is paid; the assessment year is when income is earned
- d)They are two names for the same period
Show the answer
Answer: (b) The previous year is the year in which income is earned; the assessment year is the year in which it is charged to tax
"The law recognizes and classifies the years as 'PREVIOUS YEAR' and 'ASSESSMENT YEAR'. The year in which INCOME IS EARNED is called the PREVIOUS YEAR and the year in which it is CHARGED TO TAX is called the ASSESSMENT YEAR." So income earned between 1 April 2023 and 31 March 2024 falls in the previous year 2023-24 and is assessed in the assessment year 2024-25 — the assessment year always follows. Option (c) reverses them, which is the commonest error, and the source of the confusion is the word previous: it means previous to the assessment, not "last year" in the conversational sense. Note also the boundaries of the year itself: "an annual cycle (year) as per the Income Tax law starts on the 1st OF APRIL and ends on the 31st OF MARCH of the next calendar year" — not January to December.
Where this is taught
Free preparation for NISM Series SEBI-ICERelated terms
- Hindu Undivided FamilyAn HUF is taxed as its own person under the Income Tax Act — and, under Section 80TTA, one of only two kinds of taxpayer, with an individual, allowed the savings-account interest deduction.
- Previous yearUnder the Income Tax Act, 1961, the year in which income is earned. It is taxed in the following assessment year; each runs from 1 April to 31 March.
- Housing loanA loan for construction, renovation, extension or purchase of property, whose principal qualifies for a Section 80C deduction and whose interest qualifies for a Section 24 deduction on loans taken after 1 April 1999.
- Intra-head adjustmentSetting off a loss from one source against income from another source under the same head of income — the first step of loss relief, under section 108 of the Income Tax Act, 2025.
- Inter-head adjustmentSetting off a loss under one head of income against income under a different head — permitted by section 109 of the Income Tax Act, 2025, but only after intra-head set-off and subject to two bars.
- GAAR testThe two-part test for an impermissible avoidance arrangement: the main purpose must be to obtain a tax benefit, and the arrangement must carry at least one of four tainted elements.
- Carry forward of business lossTaking an unabsorbed business loss — including a loss on exchange traded derivatives — into later years: up to 8 assessment years, against business income only, and only if the return was filed by the due date.