An income tax is a direct tax that a government levies on the income of its citizens. The Income Tax Act, of 1961, mandates that the central government collect this tax. The government can change the income slabs and tax rates every year in its Union Budget.

Income does not only mean money earned in the form of salary. It also includes income from house property, profits from business, gains from the profession (such as a bonus), capital gains income, and ‘income from other sources. The government also often provides certain leeway such that various deductions are made from an individual’s income before the tax to be levied is calculated.