Income tax is only of the direct means of taxation like capital gains tax, securities transaction tax, etc., and there are many other indirect taxes that we pay like sales tax, VAT, Octroi, service tax, etc.
The income tax you pay every month or upon every contractual earning is what forms a large part of the revenue for the Government of India. These revenue functions are managed by the Ministry of Finance, which has delegated the responsibility to managing direct taxes (like income tax, wealth tax, etc.) to the Central Board of Direct Taxes (CBDT).
Who should pay Income Tax in India
The amount of tax that must be paid depends on the individual’s age and the income they make. The entities listed below are required to pay tax and file their income tax returns.
- Artificial Judicial Persons
- Corporate firms
- Association of Persons (AOPs)
- Hindu Undivided Families (HUFs)
- Local Authorities
- Body of Individuals (BOIs)
How To file ITR (Income Tax Return) online – eFile ITR?
With the due date for ITR filing just round the corner, here is all you need to know about how to file ITR online. Before you file your taxes, you will need your Form 16, provided by your employer, and any proof of investment. Using that you can compute the tax payable and refunds, if any, for the year. You can download the IT preparation software from the IT department’s website. Once you have all the documents ready, you can start the filing process.
Types of Income under the Tax Slab
Every individual, whether a non-resident or a resident, who earns a certain amount of income is entitled to pay tax. The income that is generated by the individual can be from the interest that is generated from a savings account, the pension that the individual receives, or the salary that he/she makes. The income earned can be divided into the following categories:
|Type of Income||Nature of the Income|
|Income that received via a salary||The income that is received by the individual from a salary or from the pension they receive come under this category.|
|Income that is generated from other sources||Interest that is generated from a savings bank account or from a fixed deposit.|
|Income that is made from capital gains||Income that is generated from the sale of a house property, shares, or mutual funds.|
|Income that is generated from House Property||Income that is received because of a rental income.|
|Income from Profession and Business||Income that is generated by self-employed individuals, individuals that run a business, and individuals who work as freelancers and contractors. Tuition teachers, lawyers, and doctors who have their own practice, chartered accountants, and life insurance agents pay income tax under this category.|
Types of Income Tax Slabs for FY 2019-20
The income earned individuals will determine the income tax slabs under which they fall. The lower the income, the lower the tax liability, and those who earn less than Rs.2.5 lakh p.a. are exempt from tax.
Depending on the age of the individual, the three categories that resident individual taxpayers are divided into are mentioned below:
- Individuals who are less than the age of 60 years old.
- Senior citizens who are above 60 years old and below 80 years of age.
- Super senior citizens who are above 80 years old.
Important Dates to Remember when Paying Income Tax
The important dates to remember for individuals who fall under the bracket to pay Income Tax for the year(FY 2019-20 & AY 2020-21) is mentioned in the table below:
|Important Due Dates||The task that must be completed|
|Before January 31||Individuals must submit their proof of investment|
|Before March 31||It is deadline before which any investments under Section 80C of the Income Tax Act, 1961 must be made|
|Before 31 July||Due date to file income tax return|
|Between October and November||Tax returns must be verified by this time|
Income Tax Payment
Taxes are collected by the government in three primary ways:
- Voluntary payment by taxpayers into designated banks, like advance tax and self-assessment tax.
- TDS(Taxes Deducted at Source) which is deducted from your monthly salary, before you receive it.
- TCS (Taxes Collected at Source).
Under the Department of Revenue of the Ministry of Finance, the Income Tax Department (IT Department) is responsible for monitoring the collection of Income Tax, Expenditure Tax, and various other Financial Acts that are passed every year in the Union Budget. The Central Board of Direct Taxes (CBDT) regulates the policy and planning of taxes. CBDT is also responsible for administering the direct tax laws through the IT Department. In addition to the collection of taxes, the IT department is also involved in prevention and detection of tax avoidance.
Income Tax calculation
Income tax calculation can be done either manually or by using an online income tax calculator. The income tax rate applicable to you will depend on the tax slab under which you fall. For salaried employees, income from salary includes the basic pay plus House Rent Allowance (HRA) plus Transport Allowance plus Special Allowance plus any other allowance. However, certain components of your salary are tax exempt, like Leave Travel Allowance (LTA), reimbursement of telephone bills, etc. In case HRA is part of your salary and you reside in a rented house, you are eligible to claim exemption on the HRA. Apart from these exemptions, there is a standard deduction of up to Rs.50,000.
Income Tax Saving Investments
Declaring investments - From HRA, Life Insurance Premiums, National Savings Certificate, Leave Travel Allowance to Fixed Deposit (minimum of 5 years), ELSS Tax Saving Mutual Funds, and more, by ensuring that you have declared all your investments, you can achieve more deductions on tax. The following options can be considering for saving on income tax:
- Mutual funds such as Equity Linked Savings Schemes (ELSS) can be claimed for tax deduction under Section 80C. Compare to fixed deposits and PPF’s, the ELSS offers shorter lock-in period and more benefits when it comes to making money.
- Unit Linked Insurance Plans (ULIP) are insurance schemes that are linked to the market. The investment made under ULIP qualifies for tax deductions.
- Life insurance and health insurance - The money paid towards life insurance and health insurance policies are considering for tax deductions under Section 80C
- When we take a loan for buying a house or for renovation purpose, we are eligible for tax deductions up to Rs.1.5 lakh for a financial year.
You can also consider the following options for reducing tax amount on your income:
- Fixed Deposits (FD) - An FD with a lock-in period of five years can help you save on tax while earning the interest on the deposited amount.
- National Saving Certificate (NSC) - The NSC offers a safe and reliable method of investing money. You can deposit as low as Rs.100 for a 5-10 year lock-in period. The investments made under NSC are eligible for tax deductions.
- Provident Fund (PF) - You can also choose to invest more amount towards your PF account that will help you reduce your taxable amount.
The calculation of tax liability before-hand and paying the taxes to the government accordingly is called advance tax. There are certain deadlines for the advance tax payments. These deadlines are listed below:
|Due Date||Advance Tax Payable|
|On or before 15th June||15% of advance tax|
|On or before 15th September||45% of advance tax|
|On or before 15th December||75% of advance tax|
|On or before 15th March||100% of advance tax|
Calculation of advance tax:
- Step – 1: An individual will be required to find his/her estimated total income by finding out the sum of all the invoices which have been received along with the future payments which he/she will be receiving till the end of the financial year, i.e. 31 March.
- Step – 2: The direct expenses related to the business and the investments under Section 80C are to be deducted from the estimated total income to derive the total taxable income.
- Step – 3: The next step is to determine the total tax liability for the financial year.
- Step – 4: The TDS or tax deducted at source should be deducted from the total tax liability.
- Step – 5: In case the amount of tax liability after deducting the TDS is more than Rs.10,000, the individual will be required to pay advance taxes on the basis on or before the due dates which are mentioned above.
Income Tax deductions
Deductions for your taxable amount are available under various sections of the Income Tax Act, 1961. Deductions will have to be mentioned in the relevant ITR form at the time of e-filing income tax returns.
Deductions under this section are only available to individuals and HUF. This section allows for certain investments like NSC, etc. and expenditures to be exempt from taxation up to the amount of Rs.1.5 lakh
Deductions under this section are on payments made to LIC or any other approved insurance company under an approved pension plan. The pension policy must be up to Rs.1.5 lakh and be taken for the individual himself out of the taxable income.
Deductions under this section are for contributions to the New Pension Scheme by the assessee and the employer. The deduction is equal to the contribution, not exceeding 10% of his salary.
The total deduction available under Section 80C , 80CCC and 80CCD is Rs.1.5 lakh. However, contributions to the Notified Pension Scheme under Section 80CCD are not considered in the Rs.1.5 lakh limit.
This is the section that deals with income tax deductions on health insurance premiums paid. In the case of individuals, the insurance policy can be taken to cover himself, spouse, dependent children – for up to Rs.15,000 and parents (whether dependent or not) – for up to Rs.15,000. An additional deduction of Rs.5,000 is applicable if the insured is a senior citizen. In the case of HUF, any member can be insured, and the general deduction will be for up to Rs.15,000 and an additional deduction of Rs.5,000.
A total of Rs.2.0 lakh can be claimed as deductions whether the assessee is an individual or a HUF.
This section is for deductions on medical expenses that arise for treatment of a disease or ailment as specified in the rules (11DD) for the assessee, a family member or any member of a HUF.
This section deals with the deductions that are applicable on the interest paid on education loans for an education in India.
This section deals with tax savings applicable to first time home-owners. Applies for individuals whose first home purchased has a value less than Rs.40 lakh and the loan taken for which is Rs.25 lakh or less.
Deductions with respect to income by way of royalties or patents can be claimed under this section. Income tax can be saved on an amount up to Rs.3.0 lakh for patents registered under the Patents Act, 1970.
This section deals with the tax savings that are applicable on interest earned in savings bank accounts, post office or co-operative societies. Individuals and HUFs can claim a deduction on an interest income of up to Rs.10,000.
This section deals with the flat deduction on income tax that applies to disabled people, when they produce their disability certificate. Up to Rs.1.0 lakh can be non-taxed, depending on the severity of the disability.
This section deals with the interest paid on housing loans that is exempt from taxation. An amount of up to Rs.2.0 lakh can be claimed as deductions per year, and is in addition to the deductions under Sections 80C, 80CCF and 80D. This is only for self-occupied properties. Properties that have been rented out, 30% of rent received and municipal taxes paid are eligible for tax exemption.
Income Tax Rules
The legislature enacts the Income Tax Act, 1961, to administer and govern income tax in the country, but the Income Tax Rules, 1962, were created in order to help in the application and enforcement of the law constituted in the Act. Moreover, the Income Tax Rules can only be read in conjunction with the Income Tax Act. The Income Tax Rules are within the framework of the Income Tax Act are not allowed to override its provisions.
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