To delve deeper into income tax, we need to first understand what tax is. The government needs funds to carry out public expenditures or conduct government activities. In other words, it needs financial contribution from the public for running the country. For this sake, the government imposes a tax in the form of a compulsory financial contribution on the income, profits, occupation, property, etc. to keep its ship sailing. In India: Taxes can be levied by the Central or State Government or Local Bodies. They have to be in accordance with the laws passed by the State Legislature and Parliament.