## Sources of Income-tax Law

Income tax law is not just the Act — it is built from several interacting sources. Knowing each source's authority and binding effect is key.

### 1. The Finance Act

Presented annually by the Finance Minister in Parliament's Budget Session.
Becomes law after approval by both Houses and the President's assent.

First Schedule of the Finance Act — its four Parts:

Part	Content
Part I	Tax rates for the current Assessment Year (AY 2025-26)
Part II	TDS rates for the current FY 2025-26
Part III	Rates for salaries & advance tax for current FY 2025-26 (Normal/Old Tax Regime)
Part IV	Rules for computing net agricultural income

### 2. Income-tax Rules, 1962

Made by the CBDT to implement the Act; updated as needed.
Contain sub-rules, provisos (exceptions) and explanations (clarifications).
Must be read alongside the Act.

### 3. Circulars and Notifications

	Issued by	Binding on
Circulars	CBDT (to clarify/interpret sections)	Binding on the department, NOT on taxpayers
Notifications	Central Government (to enforce provisions / amend rules)	Binding on both department and taxpayers

### 4. Legal Decisions of Courts (Case Laws)

Court rulings interpret the law and resolve unforeseen issues.
Supreme Court rulings → binding nationwide.
High Court rulings → binding only within that State.

### The Binding-Effect Cheat Sheet

Circular → binds department only (a taxpayer may take a more favourable position).
Notification → binds everyone.
SC → all of India; HC → its own State.

Worked example

### Example 1

Q: A CBDT circular interprets a section in a way unfavourable to a taxpayer. Is the taxpayer bound by it?

A: No. Circulars are binding on the department only, not on taxpayers. The taxpayer may adopt a different (e.g., more favourable) position.

### Example 2

Q: In the Finance Act's First Schedule, which Part contains the rates for the current Assessment Year, and which contains TDS rates?

A: Part I → tax rates for the current AY (2025-26). Part II → TDS rates for the current FY (2025-26).

### Example 3

Q: A Karnataka High Court ruling favours the assessee. Can an assessee in Tamil Nadu rely on it as binding?

A: Not as binding precedent. A High Court ruling binds only within its own State. Only Supreme Court rulings bind nationwide (though the HC ruling may have persuasive value).

⚠️ Common exam mistakes

Saying circulars bind taxpayers — they bind only the department.
Confusing Circulars (CBDT) with Notifications (Central Government) and their differing binding effect.
Mixing up the four Parts of the Finance Act's First Schedule.
Treating a High Court decision as binding across all of India — it binds only within its own State.

Reference:

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