Page 1 : CHAPTER, INTRODUCTION AND, IMPORTANT DEFINITIONS, 1., Introduction, Every person with an income in excess of a prescribed limit has to pay a tax. Such tax charged on, excess income is called income tax, Income tax is an important source of revenue to the govermment., Progressive rate of income tax also serves as an effective device of minimizing the inequalities in, the distribution of income and wealth. It helps in attaining the socialistic pattern of society, which, is the core objective of our economic planning, Income tax is a direct tax as the incidence of this, tax falls directly on tax payer. Hence continuous efforts are being made for rationalizing the tax, structure with a view to minimize the hardships to tax payers., Indian Income Tax Act, 1961 provides the mechanism for the computation of taxable income of a, person. It defines the term 'Person' in such a manner that each and every entity is brought within, the jurisdiction of the Act. It also defines the various terms that are regularly used in the Act. It, specifies the incomes which are wholly or partially exempt from tax in the computation of total, income. It provides guidelines for the proper classification of various kinds of incomes under, different heads. It defines the various deductions that can be made from each head of income as, well as from gross total income; so as to arrive at the net taxable income. Total 298 sections of, Income Tax Act, 1961 as amended upto date also deal precisely with the tax authorities, procedure, of assessment, collections, recoveries and refund of tax, penalties, offences and prosecutions appeals, and revisions. Thus the act facilitates in the determination of taxable income of a person. Such, income is taxed at the rates preseribed in the financial act of the year., The Finance Act passed every year during the budget session of the parliament, prescribes the, rates of income tax applicable on the income during the forthcoming financial year., Definitions, Before commencing the study of the law of income tax, it is absolutely essential to understand, some of the terms and expressions used under the Income Tax Act, 1961. These terms have been, defined in section 2 and 3 of the Income Tax Act, 1961., 1. Person [Section 2 (31)], The term 'person' includes:, (a) An Individual : It refers to a natural human beings. It even includes minors and insane., (b) A Hindu Undivided Family (HUF): It refers to a Joint Hindu Family of persons, lineally descended from a common ancestor and their wives and unmarried daughters,, who are legally entitled to claim partition or a share on partition. A joint family of, Christians or Muslims cannot be called HUF., (c) A Firm : It refers to a partnership concern governed by the Partnership Act., (d) A Company : It means a Company as defined u/s 2.(17) of the Act. It may be an Indian, or Foreign Company., (e) An Association of Persons (AOP): It refers to a body of persons, whether incorporated, or not, who have joined together to serve common interest e.g. Trade Unions, Indian, Medical Association, Trusts and Co-operative Societies etc., (f) A Local Authority: The local selfgoverning bodies like Municipalities, Gram Panchayats,, Municipal Corporations, District Boards, etc. are the entities included under this head., (g) Every Artificial Juridical Person : It is a residuary head covering all remaining entities, not covered under the above six categories e.g. deity, idol, public corporations established, under special act.