An overview of Income Tax in India
Taxes have been around since times immemorial. In the new age, Indians started paying taxes in 1860. There were several amendments in the following years, but India needed a revamped taxation structure after independence.
The Income Tax Act was passed in 1961 and came into force on the 1st of April 1962. It contains 298 sections along with 14 schedules and thousands of subsections. Under this Act, every person whose income exceeds the basic exemption limit is liable to pay tax to the government.
Who needs to pay tax?
If we dig deeper in the Act, it states that all the earning individuals/businesses are liable to pay tax. The current union budget has some exemptions to the rule. But here is a list of assessees who come under the tax purview:–
- Self-employed
- Corporates
- Salaried Individuals
- Firms/ LLPs
- Partners of LLP/ Firm
- HUF (Hindustan Undivided Family)
- BOI (Body of Individuals)
- AOP (Association of Persons)
- Legal artificial persons &
- Local authorities
What are the different heads of income under Indian income tax?
As per the existing rules of the Income Tax Act, 1961, the tax department bifurcates the income of an assessee under five heads –
- Income from Salary
- Income from Capital Gain
- Income from House Property
- Profits and Gains earned through Business & Profession
- Income that do not fall under the above four categories form part of Other Sources
Chapter VI-A
After computing your Gross Total income, the income tax department allows certain deductions in respect of several investments made or other permitted expenses. Most of them are covered under Chapter VI-A which enable you to reduce your taxable income and consequently your tax liability.
How is the rate of tax decided on a given income?
The Indian taxation regime follows a slab-based taxation system for individuals, HUFs. It is based on the net taxable income of the assessee and is progressive, i.e., higher the earnings, higher the tax. Some items do not fall under these slabs, and they have a separate specific tax rate, such as 20% for long term capital gains, 30% for winning the lottery, etc.
Income Tax Return (ITR)
If your income is above the maximum exemption limits, or you intend to request a refund from the income tax authorities, you must file your income tax returns and pay taxes. There are occasions where you want to carry forward your losses. In such cases also, you will have to file returns, even if your income is below the basic tax slab. If you have no tax liability, you can voluntarily file your tax returns for the following reasons –
- It helps the tax department to set up a record.
- It allows faster processing of loans.
- It makes registration of immovable properties easier.
- Banks don’t issue credit cards unless you have a tax return filing history.
- To claim TDS refund
- To carry forward the losses
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