# Sources of Income Tax Law

Income tax law in India is not contained in a single document. To find the correct legal position on any issue, one must look at all of the following sources, in their order of authority.

## The Six Sources

1. Income-tax Act, 1961 – the parent statute; contains all the substantive provisions (sections, chapters, schedules).

2. Income-tax Rules, 1962 – framed by the CBDT for procedural matters (forms, computation methods, etc.). They cannot override the Act.

3. Annual Finance Act – passed every year with the Union Budget; specifies the tax rates for the assessment year and amends the Income-tax Act.

4. Circulars issued by CBDT

Binding on the Department (officers must follow them).
NOT binding on the assessee — assessee can take a more favourable view.
NOT binding on Courts.

5. Notifications issued by the Central Government or CBDT – give effect to specific provisions (e.g., notifying cost inflation index, exemptions, etc.).

6. Judicial Decisions – rulings of the Supreme Court, High Courts, and Tribunals interpret the Act.

Supreme Court decisions are law of the land (Art. 141).
High Court decisions bind authorities within that State.

## Memory hook: 'A-R-F-C-N-J'

Act → Rules → Finance Act → Circulars → Notifications → Judicial decisions

Worked example

### Example 1

Example: A CBDT circular says certain perquisites are not taxable. The Assessing Officer disagrees and wants to tax them.

Answer: The AO is bound by the circular (it is binding on the Department). However, if the assessee wishes to take a contrary view that is more favourable to her, she may do so — circulars do not bind the assessee.

⚠️ Common exam mistakes

Treating CBDT circulars as binding on everyone — they bind only the Department.
Forgetting that the Finance Act is the source of tax rates — the Income-tax Act itself does not contain the annual slab rates.
Confusing 'Rules' with 'Sections' — Rules are subordinate legislation and cannot override the Act.

Reference:

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