Income Tax Definition & Overview
India's taxes are largely divided into two categories: direct and indirect taxes. Direct taxes get imposed on an individual's earnings and benefit earned from selling or transferring any commodity. In contrast, indirect taxes get levied on purchases of any form of goods and services. Income tax (IT) is a form of direct tax imposed on Indian people based on their annual earnings.
It is a portion of one's earnings that must be paid directly to the Indian government. Tax Deducted at Source (TDS), Tax Collected at Source (TCS), and voluntary payments by taxpayers are all methods used by the Income Tax Department of India to collect revenue. The funds are used to fund various government programmes and facilities, such as infrastructure development and salaries for central and state employees.
Indians, both residents and non-residents, must pay income tax under the Income Tax Act of India, 1961. It outlines the different rules for this direct tax and the conditions for any tax deductions that might be available depending on one's tax bracket.
In this post, we shall give you a brief income tax overview:
Who are accountable to pay income tax?
Individuals under the age of 60 who earn more than Rs. 2.5 lakh per year and are under the age of 60 are subject to income tax in India. The IT department divides the revenue into five distinct divisions or heads.
Any person earning more than the exempted threshold in any of the following five heads must pay income tax to IT.
Income from salary
Salaried people and retirees benefit from a consistent source of income.
Income from other sources
Interest paid on savings accounts, fixed deposits, and other types of investments.
Income from residential property
Money earned from rent and money earned from selling the property is the two main sources of income.
Income from capital gain
Profits from the selling of capital assets such as mutual funds, stocks, and other securities.
Income from business or self-employment
Freelancing, contracting, operating as an insurance agent, CA, physicians, attorneys, tuition, and business are all sources of income.
The Government of India levies IT on certain bodies, which are the following –
- Body of individuals.
- Corporate firms.
- Association of persons.
- Hindu Undivided Family (HUF).
- Any artificial juridical person.
Under the Indian government's IT rules, each of the following organisations is subject to direct taxation. The tax bracket varies according to the form of organisation or cooperative entity.
How to file income tax?
Everyone who earns enough to reach the minimum threshold is legally obligated to file their tax returns on time.
Individuals who fail to file their IT returns on time face several penalties imposed by the Indian government. They will be responsible for a late filing fee of up to Rs 10,000 under Section 234F, and the balance will be subject to interest under Section 234A.
Compared to conventional methods, filing income tax online is faster and simpler because the taxpayer can check all the data and returns online through the same application portal. A taxpayer can also access all the required forms for various groups of taxpayers through the internet.
Deductions on Income Tax
Individuals can reduce their tax burden by engaging in a variety of tax-exempt opportunities. The Indian Income Tax Department grants tax exemptions in compliance with Sections 80C to 80U of the Income Tax Act.
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