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  • Income Tax in India

    Overview:

    Income tax is that percentage of your income that you pay to the government to fund infrastructural development, pay the salaries of those employed by the state or central governments, etc. All taxes are levied based on the passing of a law, and the law that governs the provisions for our income tax is the Income Tax Act, 1961.

    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).

    Income Tax - In Detail:

    Income tax has to be paid by every individual person, Hindu Undivided Family (HUF), Association of Persons (AOP), Body of Individuals (BOI), corporate firms, companies, local authorities and all other artificial juridical persons that generate income.

    Taxes are calculated on the annual income of a person, and an annual cycle (year) in the eyes of the Income Tax law starts on the 1st of April and ends on the 31st of March of the next calendar year. The law recognizes and classifies the year as “Previous Year” and “Assessment Year”.

    The year in which income is earned is called the previous year and the year in which it is charged to tax is called the assessment year.

    For example: Income earned between April 1st 2014 and March 31st 2015 is called the income of the previous year and will be charged to tax in the next year, or the assessment year that starts on April 1st 2015.

    Income Tax

    Taxes are collected by the government in three primary ways:

    1. Voluntary payment by taxpayers into designated banks, like advance tax and self-assessment tax.
    2. Taxes Deducted at Source (TDS) which is deducted from your monthly salary, before you receive it.
    3. Taxes Collected (TCS).

    Income Tax Slab Rates:

    Income tax slab rates are for different categories of taxpayers, who are taxed progressively higher based on their earning. The income tax slab rates can be broadly classified into the following categories:

    1. Individuals and Hindu Undivided Families (HUF):

      These are the slab rates as of financial year 2014-2015, i.e. assessment year 2015-2016 and FY 2015-2016 and assessment year 2016-2017.

      On all the tables listed below, Education Cess of 2% and SHEC of 1% will be levied on the tax computed using the rates given below.

      Under Section 87(A), an Income Tax Rebate of Rs.2,000 is provided for all individuals earning an income that’s less than Rs.5,00,000 per annum.

    • For male individuals below the age of 60 and HUF:

    Income Tax Slabs

    Income Tax Rates

    Total income less than Rs.2,50,000.

    -NIL-

    Total income greater than Rs.2,50,000 but less than Rs.5,00,000.

    10% of the amount by which it exceeds Rs.2,50,000.

    Total income greater than Rs.5,00,000 but less than Rs.10,00,000.

    20% of the amount by which it exceeds Rs.5,00,000.

    Total income greater than Rs.10,00,000.

    30% of the amount by which it exceeds Rs.10,00,000.

    • For female individuals below the age of 60:

    Income Tax Slabs

    Income Tax Rates

    Total income less than Rs.2,50,000.

    -NIL-

    Total income greater than Rs.2,50,000 but less than Rs.5,00,000.

    10% of the amount by which it exceeds Rs.2,50,000.

    Total income greater than Rs.5,00,000 but less than Rs.10,00,000.

    20% of the amount by which it exceeds Rs.5,00,000.

    Total income greater than Rs.10,00,000.

    30% of the amount by which it exceeds Rs.10,00,000.

    • For all individuals above the age of 60 – Senior Citizens:

    Income Tax Slabs

    Income Tax Rates

    Total income less than Rs.3,00,000.

    -NIL-

    Total income greater than Rs.3,00,000 but less than Rs.5,00,000.

    10% of the amount by which it exceeds Rs.3,00,000.

    Total income greater than Rs.5,00,000 but less than Rs.10,00,000.

    20% of the amount by which it exceeds Rs.5,00,000.

    Total income greater than Rs.10,00,000.

    30% of the amount by which it exceeds Rs.10,00,000.

    • For all individuals above the age of 80 – Super Senior Citizens:

    Income Tax Slabs

    Income Tax Rates

    Total income less than Rs.5,00,000.

    -NIL-

    Total income greater than Rs.5,00,000 but less than Rs.10,00,000.

    20% of the amount by which it exceeds Rs.5,00,000.

    Total income greater than Rs.10,00,000.

    30% of the amount by which it exceeds Rs.10,00,000.

    1. Businesses:

    The following tables indicate the tax slabs for businesses.

    • Co-operative societies:

    Income Tax Slabs

    Income Tax Rates

    Total income less than Rs.10,000.

    10% of the income.

    Total income greater than Rs.10,000 but less than Rs.20,000.

    20% of the amount by which it exceeds Rs.10,000.

    Total income greater than Rs.20,000.

    30% of the amount by which it exceeds Rs.20,000.

    • Firms, Local Authorities, Corporates and Domestic Companies:

      Income tax slab rates do not apply for these, as they are taxed at a flat rate of 30% on the total income declared.

      A surcharge of 5% is levied on the total income tax of domestic companies if their income exceeds Rs.1 crore. This surcharge does not apply to firms and local authorities.

    Income Tax Return (ITR):

    There is a prescribed form through which the particulars of income earned by a person, and the taxes paid thereon, are communicated to the Income Tax Department. There are different forms for the filing of returns based on different status and heads of income. This is called the return of income.

    It’s basically just you telling the government how much you’ve earned, from where you’ve earned it, and how much tax you’ve paid on it.

    Tax Forms:

    The different forms which have been prescribed for different classes of taxpayers are as follows:

    ITR Form Name

    Description of Taxpayer

    ITR – 1

    This is applicable to all individuals having salary or pension income or income from one house property, or income from other sources (which aren’t income from lottery winnings and income from race horses). This is also known SAHAJ.

    ITR – 2

    This is for Hindu Undivided Families that have income from sources other than “Profits and Gains of Business or Profession”.

    ITR – 3

    This is for Hindu Undivided Families or individuals who are partnered in a firm. The income here is either by the way of interest, salary, bonus, commission or remuneration that’s due or received from the partnered firm. The head of income should be “Profits and Gains of Business or Profession”.

    ITS – 4S

    This is for individuals and Hindu Undivided Families who’ve opted for the presumptive taxation scheme of Section 44AD / 44AE. This is also called SUGAM.

    ITR – 4

    This is for individuals or Hindu Undivided Families who carry on a proprietary business or profession.

    ITR – 5

    This is for firms, LLPs, AOPs, BOIs, artificial judiciary persons, co-operative societies and local authorities. This does not apply to trusts, political parties, colleges, etc. who are required to instead file return of income under Sections 139(4A), 139(4B), 139(4C) and 139(4D) and do not use this form.

    ITR – 6

    This for companies that don’t claim exemptions under Section 11. Charitable and religious trusts can claim exemptions under Section 11.

    ITR – 7

    This is for persons and companies who are required to furnish returns under Sections 139(4A), 139(4B), 139(4C) and 139(4D).

    ITR – V

    This is the acknowledgement of filing of return of income.

    One can acquire these forms from http://www.incometaxindia.gov.in.

    You can also file your return electronically through a free software that the Income Tax Department has provided on www.incometaxindiaefiling.gov.in.

    Income Types or Taxable Heads of Income:

    Income from different sources is taxed differently. These sources are called heads of income and are as follows:

    1. Income From Salaries:

      All income received from an employer by an employee is taxed under this heading. Employers are bound to withhold tax compulsorily under Section 192 if the income of their employees falls under a taxable bracket. Employers must also provide a Form 16, which contains details of tax deductions and net paid income.

    2. Income from House Property:

      Income here is taxable if the assesse is the owner of a property that’s been given out on rent. The property should not be used for business or professional purposes. Individuals and HUFs can claim one property as “self-occupied”, which means you and your family live there, and do not have to pay taxes on this. (Learn more about calculating income from house property)

      Income from house property is calculated as under:

      Gross Annual Value (GAV) = x

      Less: Municipal Taxes Paid = (y)

      Net Annual Value = x-y

      Less: Deductions under Section 24 = z

      Income from House Property = (x-y) – z

    3. Profits and Gains Of Business or Profession:

      These are the taxes that will be applicable for income from business or professional services rendered. The provisions for computing the tax on this type of income is in accordance with Sections 30 to 43D.

    4. Income from Capital Gains:

      This is for the taxes applicable on income that arises when capital assets are transferred. Capital assets are property of any value that’s held by the assesse like land, buildings, equity shares, bonds, debentures, jewellery, art, assets, etc. (Learn more about calculating capital gains)

    5. Income from Other Sources:

      Basically, any source of income that cannot be classified under the above heads of income falls under this heading. There are also some specific and pre-determined incomes which fall under this heading, like:

      • Income by way of dividends.
      • Winnings from horse races / lotteries.
      • Employee’s contribution towards staff welfare schemes, any fund set up under the ESIC Act that’s received by the employer from the employees.
      • Interest on securities like debentures, government securities and bonds.
      • Gifts.
      • Interest on compensation.
      • Rental income other than house property.
      • Family pension received after the death of the pensioner.
      • Interest income that is earned other than by way of securities.

    (Learn more about calculating income tax on income from other sources)

    Income Tax E-Filing:

    You can e-file your Income Tax Return, TDS return, AIR return and Wealth Tax Return online through this link https://incometaxindiaefiling.gov.in/. E-filing your return has obvious advantages like the fact that you won’t have to deal with the hassle of paperwork and waste time sorting through it all. You can simply log on to the secure website and e-file your return. (Learn more about e-file your IT returns in Online)

    This government website also has provisions for you to submit returns, view forms 26AS, outstanding tax demand, CPC refund status, rectification status, ITR – V receipt status, online application tools for PAN and TAN, e-pay your tax and even has a tax calculator.

    Deductions:

    Deductions for your taxable amount are available under various sections of the Income Tax Act , 1961.

    1. Section 80C:

      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. 1,50,000.

    2. Section 80CCC:

      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.1,50,000 and be taken for the individual himself out of the taxable income.

    3. Section 80CCD:

      Deductions under this section are for contributions to the New Pension Scheme by the assesse 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.1,50,000. However, contributions to the Notified Pension Scheme under Section 80CCD are not considered in the Rs.1,50,000 limit.

    4. Section 80D:

      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.2,00,000 can be claimed as deductions whether the assesse is an individual or a HUF.

    5. Section 80DDB:

      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 assesse, a family member or any member of a HUF.

    6. Section 80E:

      This section deals with the deductions that are applicable on the interest paid on education loans for an education in India.

    7. Section 80EE:

      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.

    8. Section 80RRB:

      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.3,00,000 for patents registered under the Patents Act, 1970.

    9. Section 80TTA:

      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.

    10. Section 80U:

      This section deals with the flat deduction on income tax that applies to disabled people, when they produce their disability certificate. Up to Rs.1,00,000 can be non-taxed, depending on the severity of the disability.

    11. Section 24:

      This section deals with the interest paid on housing loans that is exempt from taxation. An amount of up to Rs.2,00,000 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.

      Learn more about Income Tax deductions from under Section 80C to 80U.

    TDS:

    TDS or Taxes Deducted at Source - is a system incorporated by the Income Tax Law to deduct taxes before the income has been disbursed to the person earning it. It is charged depending on your income tax slab, at its point of origin. You do not get a full amount from which to deduct an income tax amount and pay it back, but get charged even before you’ve earned your income.

    The income tax here is deducted by the payer and remitted to the government on your behalf.

    TDS on income will not apply if your net taxable income is below Rs.2,50,000 for individuals, Rs.3,00,000 for senior citizens and Rs.5,00,000 for super senior citizens.

    It’s important to know which tax bracket one falls under and the investments that can be made to exempt a portion of the income from taxation. A lot of money can be saved through investments, and this helps the flow of funds through investible channels in the economy, thus helping the country develop. Health insurance policies, investments and other deductions can be used to your benefit, if you balance them out well.

    Making relevant investments can help save a lot on tax, and earn a lot in eventual interest income. Most tax-saving investments have lock-in periods where the funds cannot be accessed, and in this time compound interest at a rate higher than most savings bank accounts.

    Learn more about TDS.

    News About Income Tax

    • Jewellers remain shut in light of DGCEI survey

      After the demonetization of the Rs.500 and Rs.1,000 notes reports emerged of profiteering and tax evasion by gold merchants through conversion of demonetized currency notes. In light of these reports the Income Tax Department conducted surveys on November 10th in four locations in the Delhi-NCR region, which included Chandni Chowk, Dariba Kalan, and Karol Bagh. Most jewellers in these regions have been closed since November 11th. The Directorate General of Central Excise Intelligence (DGCEI), a branch of the Finance Ministry has sent notices to jewellers to furnish details of gold sales.

      28th November 2016

    • Depositing Black Money in Someone Else’s Account May Get You Jail

      Under the Benami Transactions Act, the Income Tax Department of India has decided to penalise offenders via penalty charges, jail term of up to 7 years and prosecution. The department conducted more than 80 surveys and around 30 searches after the demonetization announcement made on November 8, 2016, which helped it in discovering unaccounted money worth over Rs.200 crores. Under the Benami Transactions Act, the department will prosecute any person whose account is being used for depositing black money and the person who is depositing it. In this case, the person whose account is being misused will be tagged as the benamidar and the depositor will be considered the beneficial owner. This offence will invite jail period of 1 to 7 years.

      22nd November 2016

    • PAN required if total cash deposits exceed Rs.2.5 lakh

      The Central Government has put in place a new stipulation to prevent individuals from making multiple cash deposits without having to furnish their PAN card. Till November 9th individuals could make cash deposits below Rs.50,000 without having to produce a PAN card, this encouraged individuals to make multiple cash deposits of amounts below Rs.50,000 to escape the PAN provision. The central government issued a notice on the 15th of November stating that if an individual’s cash deposits between 9th November and 30th December, 2016 exceed a total sum of Rs.2.5 lakh PAN details will need to be furnished for further deposits.

      22nd November 2016

    • Income Tax Notice Issued to High Cash Depositors

      The Income Tax Department has sent notices to people who have deposited huge amount of cash in their bank accounts after the November 8, 2016. The department through the notice has asked for the source of these funds. The notices has been issued by the department under Section 133(6) in various parts of the country and a nation-wide enquiry has begun. The notices were issued after banks reported that some people deposited unusual amount of cash in their accounts. The notices sent by the department mention the date and amount of deposit for which it wants supporting documents, bills, etc. The IT department has also enhanced its survey operations against bullion traders, real estate industry, hawala operatives, etc., after November 8, 2016. The department has also sent notices to many religious and charitable organizations that enjoy tax exemptions asking them to share their cash balance. This step has been taken to stop black money from being deposited in these organizations by way of donations.

      19th November 2016

    • Government to take Strict Action against Bank Account Misuser's

      The Indian Government has announced that Jan Dhan bank account holders will face huge problems if they allow their accounts to be misused for depositing black money. The government said this after it was reported that some people are using the bank accounts of other people to convert their black money into white money. Now, if any Jan Dhan account holder deposits more than Rs.50,000 in his/her bank account, then his/her account will be scrutinised by the income tax department. Jan Dhan account holders will have to pay tax plus penalty and they may be prosecuted for abetment under the IT act if it is discovered that someone else owns the money that has been deposited in their accounts. The government has also requested people to not help black money hoarders in converting their black money into white money.

      18th November 2016

    • Notes in the Bank account will not be spared from tax deductions: Arun Jaitley

      Arun Jaitley, Indian Finance announced that deposits of the obsolete Rs 500 and Rs.1,000 notes that are already in bank accounts will not get any tax deductions, last week. He added that tax laws will apply for the money already in bank accounts. This came a day after the currency ban of Rs.500 and Rs.1,000 in one of India’s biggest anti-corruption and black money efforts. The minister also added that higher-denomination must be deposited in bank accounts to avail smaller and newer denomination currencies.

      14th November 2016

    • Cash Deposits Over 2 lakhs to be taxed: PM Modi

      Cash deposits that are over Rs.2.5 lakh will be already attracting a 200% penalty if there is an income mismatch. But now it could also attract tax, the current government stated this Wednesday, with more initiatives to combat corruption through getting rid of illicit cash from the economy.

      This announcement was made a day after PM Narendra Modi announced the abolishment of 1000 and 500 rupee banknotes to drain out money that has been hidden from tax. The new 500 and 2000 rupee notes are supposed to replace approximately 86 percent by value, for all the cash in circulation.

      11th November, 2016

    • Income Tax Department continues its raids

      The Income Tax Department went forward with its raids on Pothys Private Limited. Tax officials inspected establishment over nine different locations.

      These raids were decided upon after the police were tipped off by an anonymous source. Also, the police caught two individuals carrying over Rs. 1 crore and when asked the culprits declared that they were employees of Pothys Limited.

      Officials conducting the raids said that it is still going on and that they will provide more details once any new information pops up.

      25th October 2016

    • Income Tax Department to give out certificates congratulating taxpayers

      Collecting taxes has been a major problem for the Indian Income Tax Department which often resorted to tactics bordering harassment to get people to pay taxes. However, it has now come up with a more novel idea to get people to pay taxes.

      According to sources, it is now being said that diligent taxpayers will get a certificate signed by Central Board of Direct Taxes chairman Rani Singh Nair. This certificate will include the tax payer’s name, PAN number, and a ‘thank you’ for making a contribution towards “building of this great Nation”.

      Under this regime, taxpayers with no outstanding liabilities will get either a gold, silver, bronze certificate. Bronze certificate will be awarded for paying Rs. 1 lakh to Rs. 10 lakh; gold for Rs. 50 lakh to Rs. 1 crore, and silver for Rs. 10 lakh to Rs. 50 lakh.

      The apex tax authority has been increasing its efforts to collect more taxes and has sent out over 7 lakh notices asking people to pay taxes and declare black money in their names.

      24th October 2016

    TAX
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