Section 2 of Income Tax Act 1961: Definitions and Current Legal Position
Section 2 of the Income-tax Act, 1961 contained the central definitions used throughout that Act. From 1 April 2026, however, the Income-tax Act, 2025 is the principal income-tax statute. This page explains the older Section 2 for legacy matters and shows where readers should look for the law now in force.
What is Section 2 of the Income Tax Act?
Section 2 is the definitions provision. Under the 1961 Act it opened with the qualification "unless the context otherwise requires". This means a defined expression normally carries the statutory meaning assigned to it, while the context of a particular provision can affect how the definition operates.
Definitions are important because expressions such as assessee, person, income, capital asset, transfer, previous year, assessment year, company, business and short-term capital asset determine the scope and operation of many charging, computation, deduction, assessment and procedural provisions.
Which Act applies after 1 April 2026?
The Income-tax Act, 2025 is in force from 1 April 2026. Section 536 repeals the 1961 Act but preserves its operation for matters specified in the savings provisions. In particular, the repealed Act continues to apply to pending proceedings and to proceedings initiated on or after 1 April 2026 in respect of a tax year beginning before that date, subject to section 536.
Accordingly, this page should be used as a legacy reference to Section 2 of the 1961 Act. For a transaction, return, proceeding or tax year affected by the transition, the applicable provision should be checked against section 536 and the corresponding provision of the 2025 Act.
Important definitions under Section 2 of the 1961 Act
The following is a reader-friendly guide to major expressions historically defined in Section 2. It is not a substitute for the complete statutory text applicable to the relevant year.
Advance tax - section 2(1)
Advance tax meant the advance tax payable in accordance with Chapter XVII-C of the 1961 Act.
Agricultural income - section 2(1A)
The definition covered specified rent or revenue from agricultural land in India, income from agriculture and specified connected activities, subject to detailed conditions and explanations.
Assessee - section 2(7)
An assessee included a person by whom tax or another sum was payable and specified persons in respect of whom proceedings were taken, including deemed assessees and assessees in default.
Assessing Officer - section 2(7A)
The expression identified income-tax authorities vested or directed to exercise the relevant jurisdiction and functions of an Assessing Officer.
Assessment - section 2(8)
The statutory definition expressly included reassessment.
Assessment year - section 2(9)
Under the 1961 Act, assessment year meant the period of twelve months commencing on 1 April every year.
Business - section 2(13)
Business included trade, commerce or manufacture and an adventure or concern in the nature of trade, commerce or manufacture.
Capital asset - section 2(14)
The provision broadly covered property of any kind held by an assessee, subject to detailed inclusions and exclusions that changed through amendments over time.
Charitable purpose - section 2(15)
The definition covered specified charitable objects and contained conditions affecting the advancement of an object of general public utility.
Company - section 2(17)
The definition included an Indian company and other specified bodies, institutions and associations satisfying the statutory conditions.
Dividend - section 2(22)
Dividend was an inclusive definition covering specified distributions and payments by companies, with exclusions and explanations. Deemed dividend rules formed part of this clause.
Income - section 2(24)
Income was an inclusive definition extending beyond ordinary profits and gains to the categories specifically listed in the Act as amended from time to time.
Person - section 2(31)
Person included an individual, Hindu undivided family, company, firm, association of persons or body of individuals, local authority and artificial juridical person.
Previous year - section 2(34)
The expression referred to the previous year as defined in section 3 of the 1961 Act.
Resident - section 2(42)
Resident meant a person resident in India within the meaning of section 6 of the 1961 Act.
Short-term capital asset - section 2(42A)
The classification depended on the prescribed holding period and asset category. The detailed holding-period rules were amended over time, so the law for the relevant transfer date must be checked.
Total income - section 2(45)
Total income meant the total amount of income referred to in section 5, computed in the manner laid down in the 1961 Act.
Transfer - section 2(47)
For a capital asset, transfer was defined inclusively and covered specified sales, exchanges, relinquishments, extinguishment of rights, compulsory acquisitions and other transactions described in the clause.
Why the date of the transaction or proceeding matters
Definitions in tax legislation can change through Finance Acts. A definition appearing in an older version of Section 2 may not state the law applicable to a later assessment year or transaction. After the 2026 transition, there is an additional question: whether the matter is governed by the Income-tax Act, 2025 or remains subject to the repealed 1961 Act under section 536.
Official Income Tax Department sources
Editorial note: This article is a general statutory reference. For an assessment, appeal, notice, transaction or compliance decision, verify the text applicable to the relevant tax year and the transition provisions.