Summary: Many people get confused when they hear terms like Act, Rule, or even Regulation. It’s understandable — they often come up together, especially when we talk about taxes like Income Tax or GST. An Act is a law passed by the Parliament or State Legislature, providing the legal framework or foundation for a particular subject, such as taxation. Examples include the Income Tax Act, 1961, and the CGST Act, 2017, which define what is taxable, who is liable, and the general scope of taxation. A Rule, on the other hand, is created under an Act to offer specific procedures for its implementation. Rules act as the operational guidelines that make an Act workable. For instance, under the Income Tax Act, the Income Tax Rules, 1962, explain how to calculate deductions, file returns, or handle TDS. Similarly, the CGST Rules, 2017, guide invoice formats, return timelines, and input tax credit (ITC) procedures. Several real-life examples highlight the difference: Section 17 of the CGST Act allows ITC only for business use, while Rules 42 and 43 explain how to calculate reversals for personal or exempt use. In Income Tax, Section 10(5) permits LTA exemption for travel within India, but Rule 2B outlines eligible travel modes and limits. Likewise, Acts set the broad policy, such as requiring TDS on salaries (Section 192), while Rules define how to compute values for perquisites (Rule 3). Overall, Acts provide the “what” and Rules provide the “how,” and both are essential for applying and understanding legal and tax systems effectively. So, let’s break it down in a simple way.
What is an Act?
An Act is a law that is passed by the Parliament (or State Legislature). It lays down the basic framework or primary law on a subject.
Think of it like the blueprint or foundation of a building.
Example:
- The Income Tax Act, 1961 – This is the main law that tells us who has to pay income tax, how much, and on what kind of income.
- The Central Goods and Services Tax (CGST) Act, 2017 – This law governs the collection and levy of GST in India.
These Acts tell us what the government wants to regulate, like collecting tax on income or goods and services.
What is a Rule?
Rules are made under the Act to give it practical shape. They provide the details and procedures needed to implement the Act.
You can think of Rules as the “how-to” instructions based on the framework of the Act.
Example:
- Under the Income Tax Act, we have the Income Tax Rules, 1962. These rules tell you how to calculate certain deductions, how TDS (tax deducted at source) should be done, the format for filing returns, etc.
- Under the CGST Act, we have the CGST Rules, 2017, which specify things like the format of invoices, filing dates for returns, how input tax credit works, etc.
GST – Input Tax Credit (ITC)
| Aspect | Act | Rule |
|---|---|---|
| What it says | Section 17: Credit is allowed only for business purposes; not for exempt supplies or personal use. | Rule 42 & 43: Exactly how to calculate the portion of ITC to be reversed. |
| Real Example | You buy office supplies and use part of them for personal use. | Rule 42 tells you how to proportionately reverse ITC on that personal part. |
Income Tax – Leave Travel Allowance (LTA)
| Aspect | Act | Rule |
|---|---|---|
| What it says | Section 10(5): LTA exemption allowed for travel within India. | Rule 2B: Which travel modes are allowed, how many times in 4 years, what happens if you take family only, etc. |
| Real Example | You travel to Goa by economy flight with family. | Rule 2B says you get exemption only up to economy air fare of national carrier for shortest route. |
Income Tax – Capital Gains
| Aspect | Act | Rule |
|---|---|---|
| What it says | Section 54 says you get exemption on capital gains if you reinvest in a residential house. | Rule 2 provides details like what is considered “residential house”, how to calculate indexed cost, time limits, etc. |
| Real Example | You sell a flat and buy a new one within 2 years – Sec 54 says you won’t pay tax on gain. | Rule says how to calculate the indexed cost of the flat you sold, and how to fill Form 10AC. |
Income Tax – TDS on Salary
| Aspect | Act | Rule |
|---|---|---|
| What it says | Section 192: Employer must deduct TDS from salary. | Rule 3: How to calculate “perquisite value” of things like rent-free accommodation, car, etc. |
| Real Example | Employer gives car for personal use – taxable as perquisite. | Rule 3 says value = ₹2,400 per month + ₹900 driver. That’s the amount on which TDS applies. |
GST – Real Estate
| Aspect | Act | Rule |
|---|---|---|
| What it says | Schedule II (Sec 7): Construction service is treated as a supply. | Rule 42 + Special rules: How to apportion ITC when some flats are sold before and some after completion certificate. |
| Real Example | You sell 10 flats before CC and 5 after. | Rule says how much ITC is allowed, and how much must be reversed using project-wise carpet area. |
One More Example
-
Act: Income Tax Act, Sec 192 says:
“Employer shall deduct TDS on salary.”
-
Rule: Rule 3 says:
“If the employer gives rent-free accommodation, here’s how to compute its value.”
So next time you come across a legal or tax-related topic, just remember — the Act is the big picture, and the Rules are the fine print that help us follow it correctly. They work together, but they’re not the same thing.
Understanding this difference helps a lot — especially if you’re studying law, preparing for exams, or just trying to understand how our tax system works.
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Thanks for reading
Bablu
CA Student
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