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Income Tax Department of India - Ministry of Finance | Education

Income Tax Department of India - Ministry of Finance
Income Tax Department of India - Ministry of Finance 

Definition of Income Tax, Income Tax Department India, Laws, Income Tax Calculation, Slabs & Taxes!

What is Income Tax in India?

Individuals and corporations pay income tax, which is a sort of tax levied by the federal government on income received within a fiscal year. Another important source generating revenue for the government is taxes. This money is used by the government to build facilities, provide healthcare, educate children, as well as provide subsidies to farmers and the agricultural sector, among other things. These two most popular forms of taxes are direct and indirect taxes. In fact, a direct tax is a tax applied directly upon earned income. Taxation on income is a type of direct taxation. This tax calculation is based on the income slab rates that are in effect during that particular financial year.

Direct Taxes are generally divided into 2 categories

1. Income Tax 

This would be the tax which a person, a Hindu Undivided Family, and any other taxpayer (other than businesses) should pay upon their income. Legislation determines the tax rate that should be applied to such income.

2. Corporate Tax

This would be the tax that corporations contribute to their profits. The income tax rules of India have set a specific rate of tax for corporations once again.

Taxpayer Types: Who is responsible for paying taxes? 

The Income Tax Act categorizes different classes of taxpayers so that different tax rates can be applied to them.

The following is a list of taxpayers:

  • Individuals

  • The Undivided Hindu Family (HUF)

  • Association of People (AOP)

  • Individuals - Body (BOI)

  • Firms

  • Companies

In addition, people are divided into two groups: residents as well as non-residents. Individuals who live in India must pay tax on their worldwide income, which includes both money produced in India and income obtained elsewhere. Non-residents, on the other hand, must only pay taxes on income earned or accumulated in India. Regarding tax purposes, each financial year's residence status must be assessed separately based on the length of time spent in India. For tax purposes, residents are divided into the following groups:

  • Those under the age of 60

  • People beyond the age of 60 but under the age of 80

  • People over the age of 80

Slab Income Taxes as well as Taxpayers

According to Indian income tax legislation, each of these individuals is taxed differently. Individuals, HUF, AOP, as well as BOI taxpayers are generally paid according to the income slab they fall into, whereas firms and Indian companies have a fixed rate of tax computed on their taxable profits. Tax brackets or tax slabs are groups of people's incomes. As well as the tax rate varies for every tax slab. With an increase in pay, the rate at which income is taxed increases. Individuals and HUF taxpayers now have a "New tax system" under Budget 2020:

What is the Previous Income Tax System?

For different income levels, the former tax regime provided three slab rates for income tax levy: 5%, 20%, and 30%. People can opt to keep using the previous tax system that permits people to receive benefits like Leave Travel Concession (LTC), House Rent Allowance (HRA), as well as other benefits. The deduction is allowed in tax-saving activities under section 80d of the income (LIC, PPF, NPS, etc.) can also be recovered under section 80U. Deduction for interest charged on such a home loan is a standard deduction of Rs 50,000.

Individual taxpayers under the age of 60 are subject to the following tax slab rates under the old tax regime:

1. Salary Levels Up to Rs.2,50,000 - Zero tax rate - No tax payable.

2. Income within Rs 2.5 lakhs as well as Rs 5 lakhs - Tax rate of 5% - 5% of taxable income must be paid to the government.

3. Income between Rs 5 lakhs and Rs 10 lakhs - 20% tax rate - Rs 12,500+ 20% tax on earnings over Rs 5 lakhs

4. Earnings of more than 10 lakhs 30 % tax rate - Rs 1, 12,500+ 30 percent tax on income over Rs 10 lakhs must be paid.

There must be two additional tax categories for people over the age of 60 and those over the age of 80. The note of caution: Many people still believe that if they get Rs.12 lakhs salary, they would have to pay a 30% tax on that amount, or Rs.3, 60,000. It's not true. In a progressive tax system, a person earning 12 lakhs would pay Rs. 1, 12,500 plus Rs. 60,000 = Rs. 1, 72,500. Examine prior year's income tax slabs as well as other age groups.

Under the new tax regime, there will be income tax slabs

Individuals and HUFs will be able to benefit from a new tax regime with reduced tax rates and no deductions as well as exemptions beginning through FY 2021-22. People, as well as HUF, can choose between the old and new regimes. The new tax regime is voluntary, and the decision should be made while submitting the ITR. Whereas if the previous system remains in place, the taxpayer will be able to take advantage of all applicable deductions and exemptions. Under the new tax structure, there are four income tax slabs:

1. Income between Rs 2.5 lakh and Rs 5 lakh - 5% tax must be paid

2. If your income is between Rs 5 lakh and Rs 7.5 lakh, you'll have to pay a 10% tax.

3. If your income is between Rs 7.5 lakh and Rs 10 lakh, you'll have to pay a 15% tax.

4. Income between Rs 10 lakh and Rs 12.5 lakh is subject to a 20% tax.

5. If your income is between Rs 12.5 lakh and Rs 15 lakh, you'll have to pay a 25% tax.

6. If your income exceeds Rs 15 lakh, you must pay a 30% tax.

When taxpayers choose the New Tax regime, many deductions, such as deductions and exemptions, are no longer available. The following are some of the new regime's exemptions and deductions:

1. Allowances for transportation in the event of such a person with a disability.

2. Conveyance allowance received to cover the cost of transportation while on the job.

3. Whatever payment is made to cover the expense of a trip or even a transfer.

4. Daily allowance obtained to cover routine normal charges or expenses incurred as a result of his absence from his regular duty location.

Payment method for Income Tax

1. TDS (Tax Deducted at Source)

When a payer makes a payment to an income recipient, tax is deducted at the source. By reconciling the TDS amount with the ultimate tax liability, the income receiver can claim the TDS credit.

2. Tax planning

Whenever a taxpayer's expected annual income tax burden exceeds Rs 10,000, he is required to pay tax in advance. Payment deadlines for advance tax installments have been set by the government.

3. The Self-Assessment Tax

That is the remaining tax on the assessed income that the taxpayer must pay. After subtracting the advance tax and TDS from the total income tax owed on the assessed income, the self-assessment tax is computed.

4. E-Payment Service

Taxpayers can submit advanced as well as self-assessment taxes online using the NSDL website. Every taxpayer must, however, have such a net banking account with a recognized bank.

Filing of Tax Returns

With a few exceptions, all taxpayers must now file their income tax returns online.

1. Taxpayers above the age of 80 do not require to file their returns online.

2. Taxpayers with an annual income of less than Rs 5 lakhs who are not demanding a return are not required to complete a digital return.

The balance of the paperwork must be submitted online. It's also worth noting that return filing deadlines have been set. This deadline for most individual taxpayers to file their income tax returns is the 31st of July concluding the fiscal year in concern.

E-filing would be a more accurate as well as better option than filing mostly on the IRS website. It's also useful mostly for e-filing your tax return. Clarity assists customers in claiming all of their eligible deductions as well as assisting you in investing. Once you've filed your return online, you may either e-verify it or print it off and mail it to CPC in Bengaluru for approval.

Calculation of Income Tax

People should compute their income tax based on the type of income they have. For various allowances obtained, a salaried individual might make use of qualifying exemptions. People and HUFs can claim a deduction under Sections 80C through 80U, subtract it from their gross total income, and then calculate their tax due. In addition, all taxes paid, such as advance tax, TDS, and so on, should be deducted from the total income tax liability. When reaching the net amount of taxes payable, the taxpayer should also apply the effect of the rebate under Section 87A as well as relief under Sections 89, 90, and 91.

So each source of income should be reported on your tax return. In fact, some revenues are exempted under the legislation, such as dividend income from such an Indian firm, LTCG on registered equity shares up to Rs 1 lakh in almost any financial year, and so on. As a result, here's a short guideline you may use to figure out how much tax you owe:

1. Make a list of all of your earnings, including salary, rental income, capital gains, interest, and profits from your business or profession.

2. Take away incomes that are tax-free under the law.

3. Take advantage of all possible deductions for each source of income. For example, subtract Rs 50,000 from your wage income, deduct municipal taxes from your rental revenue, deduct business-related expenditures from the turnover, and so on.

4. Declare all eligible exemptions for each type of income, such as money invested in a second home like a capital gain exemption, and so on.

5. Claim the following deductions from your total income: 80C, 80D, 80TTA, 80TTB, and so on.

6. Your taxable income will now be calculated. Determine your tax bracket and the amount of income tax you must pay as a result.

7. This is a great way to keep updated with the Budget since the government continuously introduces and changes tax slabs, initiatives, and tax incentives.

The Laws of Income Taxes

Most of the regulations which regulate the country's taxes are found in the Income Tax Act. In February of each year, the Finance Minister delivers a budget. The Union Budget proposes many changes to the Income Tax Act. This establishment of a new tax system was included in the latest recent Union Budget proposed by the existing Finance Minister.

Income tax regulations, bulletins, notices, and case laws are the additional components of income tax law, in addition to the Income Tax Act. Every one of them supports the application of income tax legislation as well as tax collection

Credit - Komal Sharma, Direct News 99