Understanding Income Tax in India
Income tax refers to the tax levied by the government for the purpose of financing its various operations. Taxes are of two types, direct and indirect. Whereas Income Tax is a direct tax, VAT, service tax, excise and the latest one to subsume all these taxes Goods and Services Tax (GST) are all indirect taxes.
Apart from funding the activities of the government, taxes also act as a fiscal stabilizer that aid in distributing wealth evenly among the population. Furthermore, taxes are instrumental in cushioning the effects of economic cycles. The payment of Income Tax in India is made according to the provisions made under the Income Tax Act.
According to the Indian Income Tax laws, income from the following sources is deemed taxable:
- Income from house property
- Profits and gains of business or profession
- Capital gain
- Income from other sources
The sum of income from all the sources above is calculated according to the provisions of Income Tax Act. The tax rates in India vary according to the earnings of an individual and are referred to as Income Tax slabs. These Income Tax rates are revised every year during the budget.
Income tax is calculated on an annual basis. It is levied on the income earned in the previous year which is also known as the Assessment Year. In the eyes of the law, the Financial Year begins on the 1st of April in a given year and ends on the 31st of March of the following year.
For the Financial Year 2016-17, the Income Tax deadlines are as follows:-
- 31st July – Last Date of Return filling for non-audit cases
- 30th September – Last Date of Return filling for audit cases
( 1 ) Income tax filing for salaried individuals
Salaried individuals can file their income tax returns basis their Form 16. Most of their income details are mentioned in their Form 16 issued by their employers.
( 2 ) Documents required for tax filing
There are different documents required for tax filing that need to be kept ready before you file your taxes. These include Form 16, Form 16A, investment receipts and proofs.
( 3 ) Income Tax Slab
Indian Income tax laws, tax individuals per different slab rates of income. The basic exemption limit is Rs 2,50,000. Income tax department charges different tax slabs at the rates ranging from 10% up to 30%.
( 4 ) Income Tax Returns (ITR)
Tax returns are a statement of your earnings from various sources of income that include the tax liability, details of tax paid, and other refunds that are eligible to receive from the government.
( 5 ) Claiming refund of taxes paid
You are eligible for refunds to be claimed from the tax department in case you have paid excess taxes. These can be claimed on filing your tax returns. Once you have claimed a refund, you need to keep checking the status of your refund to make sure that your refunds are credited to your account in time.
( 6 ) Late filing of income tax returns
It is necessary to file the income tax returns before the deadline to avoid a penalty for non-filing of tax returns
( 7 ) Income Tax Filing Procedure
With the introduction of e-Filing, Income Tax Returns have become simpler and convenient. You can e-File Income Tax Returns from the comfort of your home or office at any hour of the day. You can follow these simple steps to e-File Income Tax Returns online.
What are the various Tax Saving Instruments ?
There are many tax saving instruments that are used for tax exemptions under the various sections of the Income Tax Act. Investing in tax saving instruments is an apt way to boost your wealth and save taxes concurrently. You have to know about on section 80C for save taxes. Apart from this, you can also save taxes by investing in health insurance, and through section 80D
BE A SMART TAX PLANNER AND SAVE TAXES
Proper tax planning can help to save the maximum tax.
Through prudent tax planning, you can not only minimize your tax liability and save taxes but also achieve the following:
- Take care of sudden hospitalization/Medical expenses.
- Provide for lifelong Pension.
- Pay for your children’s education and other needs.
- Create wealth over long term through Capital Appreciation.
- Provide Life Time Security to your loved ones.
While Income tax is payable on the total taxable Income earned by an individual in one year, wealth tax is paid on the possession of certain assets which fall under the Wealth Tax Act of the Indian taxation system. A wealth tax is a tax on the accumulated stock of purchasing power, in contrast to Income tax, which is a tax on the flow of assets (a change in stock). Wealth tax is a direct tax levied on the ownership of certain assets by individuals and Hindu Undivided Families (HUFs) even though these assets may not generate any Income. It is governed by the Wealth Tax Act, 1957.
Under the Act, the tax is charged in respect of the wealth held during the assessment year by the following:
- Hindu Undivided Family (HUF)
Can ignore Wealth Tax ?
Penalties related to ignorance of wealth tax are much more severe as compared to that of Income tax. Remember that ignoring wealth tax can lead to serious problems for a taxpayer, with the penalty ranging from 100% to 500% of the unpaid tax, and in extreme cases, even jail.
What is Taxable ?
The assets which are taxable under the Wealth Tax Act are:
- Residential property other than one house
- Cars (unless used for commercial hiring)
- Precious metals including those in the form of jewelr
- Air crafts, yachts, boats
- Urban land
- Cash in hand in excess of Rs 50,000.
In addition to these, all assets transferred by individuals to their minor children and to a spouse for inadequate consideration also attract wealth tax. Cases, even jail.
What is exempt from Wealth Tax?
Following assets are exempt from the purview of Wealth Tax:any one residential property
- commercial property
- any one residential property
- financial assets like shares, mutual funds, debentures
- any outstanding loan taken to buy the asset
- any residential properties which are rented for at least 300 days in a year. Remember that the rental income from such property is counted under Section 24 as "Income from House Property" and taxed under Section 24.
In India, the extent of taxable wealth for individuals differs with their residential status. For resident Indians, net taxable wealth will include all assets in India and abroad whereas for non-resident Indians, net taxable wealth includes only those assets which are in India.
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