The concept of law predates writing. "Law" refers not only to the system of rules, as your definition notes, but to the individual rules making up that system (for example, there is a law that prohibits theft).
An act is, more generally than the definition you quote, a thing that is done (for example, someone who is discovered committing a crime can be said to have been "caught in the act.") This also does not depend on writing.
In our literate times, however, when a legislature (or any body, such as a corporate board of directors), wants to achieve something, someone writes a description of a proposed result. When the body makes a formal decision to adopt the written document (by a vote, for example), it is deciding to do the thing described in the document; that is, it is deciding to act. Typically, for a legislature, the thing it's doing is to create, modify, or repeal a law.
It's not very difficult to see how a document that describes a legislature's desire to act came to be called an act. In some contexts, however, it can also be called a law.
So the word law can refer to the entire system (as in law school), to a particular act (as in the legislature passed a law today called the XYZ Act), or indeed to a particular rule or section of an act (as in the law in question is subparagraph 2(B)(ii)(b) of the XYZ Act).
Law can also refer to case law, of course, or regulatory law, so we tend to use statutory law or statute to denote the laws created through the legislative process.
In conclusion, the word "law" has several related meanings, so its use can be imprecise. When speaking about specific paragraphs, precision may be in order. In a case like this, where a paragraph create exceptions to rules laid out in a preceding paragraph, it doesn't make a lot of sense to describe each paragraph as a "law." The numbered items in statutory text can be called many things, and usually have different names depending on the level at which they are found. So I would not know whether these are sections, subsections, paragraphs, subparagraphs, or something else. If I were unable to find the correct terminology for (in this case) India, would probably use a generic term like "items."
