Income Tax: India

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The tax which is paid by an individual to the Central Government of India is known as Income Tax. It plays a vital role in the economic growth and stability of our country. The government generates revenue through Income Tax. Income Tax enables the government to estimate the economic strength of an individual. It also helps the government understand how the money is distributed amongst the public.

The first Income Tax Act was passed in the year 1860. This was followed by the Second Income Tax Act in 1865. Agriculture Income was introduced in the second act. As per the 1961 Income Tax Act (the latest I.T Act), an individual whose salary exceeds the maximum limit of non-taxable amount will be liable to pay Income Tax. There is a provision for deduction and exemption in Income Tax, depending upon various criteria like- type of assesse, source of income, residential status, investment in saving schemes, etc. The Finance Ministry keeps changing the rates of income tax at regular intervals (usually on a yearly basis).

Income Heads:

Income of a person is calculated under various defined heads of income. According to Section 14 of Income Tax Act, 1961 there are following heads of income under which total income of a person is calculated:

- Salary
- House Property
- Capital Gains
- Profit in Business
- Other Sources

Permanent Account Number (PAN): Permanent Account Number (PAN) is a ten-digit alphanumeric number that is unique to every individual issued by the Income Tax Department.

It is mandatory to quote the PAN on challans for any payment due to the Income Tax department. PAN must be possessed by all tax payers.

I.T Return: The process by which an assesse pays his tax to the I.T department.

Income Tax Slabs:

Income Tax slabs can be divided intro three. Each slab has different rates. These slabs are categorized as below:

- General
- Women
- Senior Citizen

Deductions and Exemptions:

The government provides for certain deductions and exemptions on tax as mentioned under.

Deductions:

- Donations for charity
- House Rent Allowance
- Handicapped people and dependents
- Education loan
- Pension fund
- Remuneration received in foreign currency (resident of India, as the individual helps generate foreign exchange)
- Investments like : tax saving bonds, government securities, UTI mutual funds, etc.

Exemptions:

At the time of calculating annual income, all the items that fall under exemptions will not be added.

To mention a few:

- Agriculture income
- Income on behalf of Prime Minister's National Relief Fund
- Income on behalf of Prime Minister's Aid to Students Fund
- Income of a university or other educational institution
- Income of a local authority as specified
- Scholarships granted to meet the cost of education
- Receipt of interest from public sector company in respect of bonds and debentures as notified.
- Interest on the new Capital Investment Bonds
- Receipt of Payment from Public Provident Fund or Statutory Provident Fund, etc

Income Tax Saving Schemes:

There are certain schemes that help save tax. A few of the tax saving schemes are:

- National Savings Certificate (NSC)
- Public Provident Fund (PPF)
- Post Office Scheme (POS)
- Dividend

Income Tax Calculator:

Example 1: Let us take a case where the assesse's income is Rs.3,50,000.
• According to the Income Tax Slab, the first Rs.1,50,000 is not taxable.
• The next Rs.1,50,000 is taxable @10%.
• 10% of Rs.1,50,000 is Rs.15,000.
• The remaining Rs.50,000 i.e. 3,50,000 - (1,50,000+1,50,000) is taxable @20%.
• 20% of Rs.50,000 is Rs.10,000.
• Therefore, the net Income Tax Payable is Rs.15,000 + Rs.10,000 i.e. Rs.25,000.

Example 2: Let us take a case where the assesse is a woman and whose taxable income is Rs.3,20,000.
• According to the Income Tax Slab, the first Rs.1,80,000 is not taxable.
• The next Rs.1,20,000 is taxable @10%.
• 10% of Rs.1,20,000 is Rs.12,000.
• The remaining Rs.20,000 i.e. 3,20,000 - (1,80,000+1,20,000) is taxable @20%.
• 20% of Rs.20,000 is Rs.4,000.
• Therefore, the net Income Tax Payable is Rs.12,000 + Rs.4,000 i.e. Rs.16,000.

Example 3: Let us take a case where the assesse is a senior citizen and whose taxable income is Rs.3,80,000.
• According to the Income Tax Slab, the first Rs.2,25,000 is not taxable.
• The next Rs.75,000 is taxable @10%.
• 10% of Rs.75,000 is Rs.7,500.
• The next Rs.80,000 i.e. 3,80,000 - (2,25,000+75,000) is taxable @20%.
• 20% of Rs.80,000 is Rs.16,000.
• Therefore, the net Income Tax Payable is Rs.7,500 + Rs.16,000 i.e. Rs.23,500.
(If the assesse claims any rebate/ exemption, the claimed amount will be deducted from his income with reference to the law of Income Tax Act before calculating the tax.)

Note:

Surcharge on Income-tax:
Will be levied at the rate of 10% where the taxable income exceeds Rs.10 lakh.
Education Cess:
Will be levied at the rate of 2% on the amount of income tax and surcharge(if any).
Secondary and Higher Education Cess:
An additional surcharge, called the "Secondary and Higher Education Cess at the rate of 1% of income-tax and surcharge(not including the "Education Cess on income-tax") shall be levied in all cases.

 It is thus the moral duty of every citizen of the country who is a tax assesse to file I.T returns on time in order to help generate revenue for the country.

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