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Section2
The Finance Act, 2001

Income-tax

In force As on 06 Oct 2026

Ministry Finance Cited by 3 provisions

Section 2 of the Finance Act, 2001 deals with income-tax. CHAPTER II RATES OF INCOME-TAX Income-tax.

CHAPTER II

RATES OF INCOME-TAX

Income-tax.

2. (1) Subject to the provisions of sub-sections (2) and (3), for the assessment year commencing on the 1st day of April, 2001, income-tax shall be charged at the rates specified in Part I of the First Schedule and such tax as reduced by the rebate of in­come-tax calculated under Chapter VIII-A of the Income-tax Act, 1961 (43 of 1961) (hereinafter referred to as the Income-tax Act) shall be increased,—

(a) in the cases to which Paragraphs A, B, C and D of that Part apply, by a surcharge for purposes of the Union; and

(b) in the cases to which Paragraph E of that Part applies, by a surcharge, calculated in each case in the manner provided therein.

(2) In the cases to which Paragraph A of Part I of the First Schedule applies, where the assessee has, in the previous year, any net agricultural income exceeding six hundred rupees, in addition to total income, and the total income exceeds fifty thousand rupees, then,—

(a) the net agricultural income shall be taken into ac­count, in the manner provided in clause (b) [that is to say, as if the net agricultural income were comprised in the total income after the first fifty thousand rupees of the total income but without being liable to tax], only for the purpose of charging income-tax in respect of the total income; and

(b) the income-tax chargeable shall be calculated as fol­lows:—

(i) the total income and the net agricultural income shall be aggregated and the amount of income-tax shall be determined in respect of the aggregate income at the rates specified in the said Paragraph A, as if such aggregate income were the total income;

(ii) the net agricultural income shall be increased by a sum of fifty thousand rupees, and the amount of income-tax shall be determined in respect of the net agricultural income as so in­creased at the rates specified in the said Paragraph A, as if the net agricultural income as so increased were the total income;

(iii) the amount of income-tax determined in accordance with sub-clause (i) shall be reduced by the amount of income-tax determined in accordance with sub-clause (ii) and the sum so arrived at shall be the income-tax in respect of the total in­come:

Provided that the amount of income-tax so arrived at, as reduced by the amount of rebate of income-tax calculated under Chapter VIII-A, shall be increased by a surcharge for purposes of the Union calculated in each case in the manner provided in that Paragraph and the sum so arrived at shall be the income-tax in respect of the total income.

(3) In cases to which the provisions of Chapter XII or Chapter XII-A or sub-section (1A) of section 161 or section 164 or sec­tion 164A or section 167B of the Income-tax Act apply, the tax chargeable shall be determined as provided in that Chapter or that section, and with reference to the rates imposed by sub-section (1) or the rates as specified in that Chapter or section, as the case may be:

Provided that the amount of income-tax computed in accordance with the provisions of sections 112 and 113 shall be increased by a surcharge for purposes of the Union or surcharge as provided in Paragraph A, B, C, D or E, as the case may be, of Part I of the First Schedule:

Provided further that in respect of any income chargeable to tax under sections 115A, 115AB, 115AC, 115ACA, 115AD, 115B, 115BB, 115BBA, 115E and 115JB of the Income-tax Act, the amount of in­come-tax computed under this sub-section shall be increased,—

(a) by a surcharge for purposes of the Union, calculated,—

(i) in the case of a co-operative society, a firm and a local authority, at the rate of twelve per cent of such income-tax;

(ii) in the case of a person other than a company, a co-operative society, a firm and a local authority,—

(A) at the rate of twelve per cent of such income-tax where the total income exceeds sixty thousand rupees but does not exceed one lakh fifty thousand rupees; or

(B) at the rate of seventeen per cent of such income-tax where the total income exceeds one lakh fifty thousand rupees; and

(b) by a surcharge calculated at the rate of thirteen per cent of such income-tax in the case of a domestic company.

(4) In cases in which tax has to be charged and paid under sec­tion 115-O or section 115R or section 115U of the Income-tax Act, the tax shall be charged and paid at the rate as specified in those sections and shall be increased by a surcharge for purposes of the Union, calculated at the rate of two per cent of such tax:

Provided that no surcharge shall be payable by a foreign company.

(5) In cases in which tax has to be deducted under sections 193, 194, 194A, 194B, 194BB, 194D and 195 of the Income-tax Act, at the rates in force, the deduction shall be made at the rates specified in Part II of the First Schedule and shall be increased by a surcharge for purposes of the Union, calculated in each case in the manner provided therein.

(6) In cases in which tax has to be deducted under sections 194C, 194E, 194EE, 194F, 194G, 194H, 194-I, 194J, 194K, 194L, 196A, 196B, 196C and 196D of the Income-tax Act, the deduction shall be made at the rates specified in those sections and shall be in­creased by a surcharge for purposes of the Union, calculated at the rate of two per cent of such tax:

Provided that no surcharge shall be payable by a foreign company.

(7) In cases in which tax has to be collected under the proviso to section 194B or under section 206C of the Income-tax Act, the collection shall be made at the rates specified in that section or at the rates specified in Part II of the First Schedule, as the case may be, and shall be increased, by a surcharge for purposes of the Union, calculated in each case in the manner provided therein.

(8) Subject to the provisions of sub-section (9), in cases in which income-tax has to be charged under sub-section (4) of section 172 or sub-section (2) of section 174 or section 175 or sub-section (2) of section 176, of the Income-tax Act or deducted under section 192 of the said Act from income chargeable under the head "Salaries" or in which the "advance tax" payable under Chapter XVII-C of the said Act has to be computed, at the rate or rates in force, such income-tax or, as the case may be, "advance tax" shall be so charged, deducted or computed at the rate or rates specified in Part III of the First Schedule and such tax as reduced by the rebate of income-tax calculated under Chapter VIII-A of the said Act shall be increased for purposes of the Union, calculated in each case in the manner provided therein:

Provided that in cases to which the provisions of Chapter XII or Chapter XII-A or section 115JB or sub-section (1A) of section 161 or section 164 or section 164A or section 167B of the Income-tax Act apply, "advance tax" shall be computed with reference to the rates imposed by this sub-section or the rates as specified in that Chapter or section, as the case may be:

Provided further that the amount of income-tax computed in ac­cordance with the provisions of sections 112 and 113 of the Income-tax Act shall be increased by a surcharge for purposes of the Union as provided in Paragraph A, B, C, D or E, as the case may be, of Part III of the First Schedule:

Provided also that in respect of any income chargeable to tax under sections 115A, 115AB, 115AC, 115ACA, 115AD, 115B, 115BB, 115BBA, 115E and 115JB of the Income-tax Act, "advance tax" computed under the first proviso shall be increased by a sur­charge for purposes of the Union, calculated at the rate of two per cent of such tax:

Provided that no surcharge shall be payable by a foreign company.

(9) In cases to which Paragraph A of Part III of the First Sched­ule applies, where the assessee has, in the previous year or, if by virtue of any provision of the Income-tax Act, income-tax is to be charged in respect of the income of a period other than the previous year, in such other period, any net agricultural income exceeding five thousand rupees, in addition to total income and the total income exceeds fifty thousand rupees, then, in charging income-tax under sub-section (2) of section 174 or section 175 or sub-section (2) of section 176 of the said Act or in computing the "advance tax" payable under Chapter XVII-C of the said Act, at the rate or rates in force,—

(a) the net agricultural income shall be taken into ac­count, in the manner provided in clause (b) [that is to say, as if the net agricultural income were comprised in the total income after the first fifty thousand rupees of the total income but without being liable to tax], only for the purpose of charging or computing such income-tax or, as the case may be, "advance tax" in respect of the total income; and

(b) such income-tax or, as the case may be, "advance tax" shall be so charged or computed as follows:—

(i) the total income and the net agricultural income shall be aggregated and the amount of income-tax or "advance tax" shall be determined in respect of the aggregate income at the rates specified in the said Paragraph A, as if such aggregate income were the total income;

(ii) the net agricultural income shall be increased by a sum of fifty thousand rupees, and the amount of income-tax or "ad­vance tax" shall be determined in respect of the net agricultural income as so increased at the rates specified in the said Para­graph A, as if the net agricultural income were the total income;

(iii) the amount of income-tax or "advance tax" deter­mined in accordance with sub-clause ( i) shall be reduced by the amount of income-tax or, as the case may be, "advance tax" deter­mined in accordance with sub-clause (ii) and the sum so arrived at shall be the income-tax or, as the case may be, "advance tax" in respect of the total income:

Provided that the amount of income-tax or "advance tax" so ar­rived at, as reduced by the rebate of income-tax calculated under Chapter VIII-A of the said Act, shall be increased by a surcharge for purposes of the Union, calculated in each case in the manner provided therein.

(10) For the purposes of this section and the First Schedule,—

(a) "domestic company" means an Indian company or any other company which, in respect of its income liable to income-tax under the Income-tax Act for the assessment year commencing on the 1st day of April, 2001, has made the prescribed arrangements for the declaration and payment within India of the dividends (including dividends on preference shares) payable out of such income;

(b) "insurance commission" means any remuneration or re­ward, whether by way of commission or otherwise, for soliciting or procuring insurance business (including business relating to the continuance, renewal or revival of policies of insurance);

(c) "net agricultural income", in relation to a person, means the total amount of agricultural income, from whatever source derived, of that person computed in accordance with the rules contained in Part IV of the First Schedule;

(d) all other words and expressions used in this section and in the First Schedule but not defined in this sub-section and defined in the Income-tax Act shall have the meanings respective­ly assigned to them in that Act.

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Section 2, The Finance Act, 2001.

Cross-references

Extracted from the operative text of the enactments themselves. Every destination below exists in our corpus.

This section refers to

  1. Income-tax Act s. 112 Tax on long-term capital gains
  2. Income-tax Act s. 113 Tax in the case of block assessment of search cases
  3. Income-tax Act s. 115A Tax on dividends, royalty and technical service fees in the case of foreign companies
  4. Income-tax Act s. 115AB Tax on income from units purchased in foreign currency or capital gains arising from their transfer
  5. Income-tax Act s. 115AC Tax on income from bonds or Global Depository Receipts purchased in foreign currency or capital gains arising from their transfer
  6. Income-tax Act s. 115ACA Tax on income from Global Depository Receipts purchased in foreign currency or capital gains arising from their transfer
  7. Income-tax Act s. 115AD Tax on income of Foreign Institutional Investors from securities or capital gains arising from their transfer
  8. Income-tax Act s. 115B Tax on profits and gains of life insurance business
  9. Income-tax Act s. 115BB Tax on winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or gambling or betting of any form or nature whatsoever
  10. Income-tax Act s. 115BBA Tax on non-resident sportsmen or sports associations
  11. Income-tax Act s. 115E Tax on investment income and long-term capital gains
  12. Income-tax Act s. 115JB Special provision for payment of tax by certain companies
  13. Income-tax Act s. 115U Tax on income in certain cases
  14. Income-tax Act s. 167B Charge of tax where shares of members in association of persons or body of individuals unknown, etc
  15. Income-tax Act s. 193 Interest on securities
  16. Income-tax Act s. 194 Dividends
  17. Income-tax Act s. 194A Interest other than "Interest on securities"
  18. Income-tax Act s. 194B Winnings from lottery or crossword puzzle, etc
  19. Income-tax Act s. 194BB Winnings from horse race
  20. Income-tax Act s. 194D Insurance commission
  21. Income-tax Act s. 195 Other sums
  22. Income-tax Act s. 206C Profits and gains from the business of trading in alcoholic liquor, forest produce, scrap, etc

Referred to by 3

  1. s. 1 Short title and commencement
  2. s. 3 Amendment of section 2
  3. s. First Schedule First Schedule

Related judgements & precedents

These are some judgments that construed this section, and hold precedence value. They hold authority on how to read, interpret and use this section.

  1. Commr. of Income Tax-iii, Gujarat vs Patel Gruh Nirman Flat Yojana 5

    Supreme Court of India 20 Nov 2015 Binding (SC)

    Court's Decision & Legal Precedent

    A promotional scheme offering prizes by lucky draw to incentivize timely payment of installments in a real estate transaction does not constitute a lottery business requiring tax deduction at source under Section 194B of the Income Tax Act, 1961, because: (1) there is no independent consideration paid for participation in the lucky draw; (2) participation is automatic upon becoming a plot purchaser; (3) the scheme lacks the essential elements of a lottery (separate ticket purchase, risk of loss, independent consideration); and (4) the scheme is a business promotion activity, not a lottery business. Therefore, tax deduction at source is not applicable to prizes awarded under such promotional schemes.

    On this section: Inserted explanation to include prizes awarded by draw of lots or by chance under any scheme or arrangement by whatever name called. Made effective from 01.04.2002. Court held this amendment would not apply to assessment years prior to 01.04.2002.

    Read the full order on eCourts India

  2. Commr. of Income Tax-iii, Gujarat vs Patel Gruh Nirman Flat Yojana 5

    Supreme Court of India 20 Nov 2015 Binding (SC)

    Court's Decision & Legal Precedent

    A promotional scheme offering prizes through lucky draw to customers who make timely payments on a primary transaction (plot purchase) does not constitute a lottery requiring Tax Deduction at Source under Section 194B of Income Tax Act 1961, when: (a) there is no separate or independent consideration paid specifically to participate in the draw beyond the primary transaction consideration; (b) participants do not pay to try their luck as the primary purpose but become eligible incidentally through the primary purchase; (c) the scheme is genuinely designed to promote the primary business activity and not as an independent lottery business; and (d) participants do not stand to lose consideration specifically paid for the draw opportunity.

    On this section: Added explanation to include prizes by draw of lots under definition of lottery, effective from 01.04.2002. The High Court and Supreme Court found this amendment did not apply to assessment years prior to 2002-2003.

    Read the full order on eCourts India

The holding above is the ratio decidendi as extracted from the judgment by eCourts India, reproduced unaltered — it is a rendering of the court's reasoning, not a substitute for its words. Read the order itself before relying on it.

Questions about Section 2

What have the courts held on Section 2 of the Finance Act?

Commr. of Income Tax-iii, Gujarat vs Patel Gruh Nirman Flat Yojana 5 (20 Nov 2015) is the leading judgment on this section among those set out below: Inserted explanation to include prizes awarded by draw of lots or by chance under any scheme or arrangement by whatever name called. Made effective from 01.04.2002. Court held this amendment would not apply to assessment years prior to 01.04.2002. Another 1 judgment on this section is set out below, all of them from the Supreme Court.

How do I find court cases under Section 2 of the Finance Act?

In judgments and charge sheets this section is written several ways, and each form finds a different set of orders. These search the full text of every order eCourtsIndia holds, best matches first: Finance Act 2001 2, section 2 Finance Act 2001, section 2 of the Finance Act. Each opens the full list of orders on eCourtsIndia, where it can be narrowed by court, year and outcome. 2 reported judgments on this section are set out on this page, beginning with Commr. of Income Tax-iii, Gujarat vs Patel Gruh Nirman Flat Yojana 5 (20 Nov 2015).

What should I read with Section 2 of the Finance Act, and has it changed?

Its own text turns on Income-tax Act 112 (Tax on long-term capital gains), Income-tax Act 113 (Tax in the case of block assessment of search cases), Income-tax Act 115A (Tax on dividends, royalty and technical service fees in the case of foreign companies), Income-tax Act 115AB (Tax on income from units purchased in foreign currency or capital gains arising from their transfer), and on 18 further provisions, so none of them can safely be read on its own. 3 other provisions in this corpus refer back to it.

When was the Finance Act enacted?

Finance Act was enacted in 2001. India Code records no commencement date for it. It is in force as at the date shown on this page.

Other sections of this Act

Source and method. Compiled from the enactments of Parliament and of the State legislatures as published on India Code, and republished together with commentary and other original matter under section 52(1)(q)(ii) of the Copyright Act, 1957. Structured, cross-referenced and maintained by eCourtsIndia. Harvested from the Income Tax Department's own portal at incometaxindia.gov.in, which publishes the Finance Acts section by section. India Code carries none of them: its Central community holds the Acts that stand as general law, and a Finance Act is an amending and rate-fixing instrument. This page is not a substitute for legal advice.