Income Tax

 What is Income Tax?

The term income tax refers to the tax paid by an individual or firms or companies or Hindu Undivided Family directly to the government. It is mainly based on the total income or profit earned during a financial year. The money collected by means of income tax is used by the government for the development of infrastructure related works, payment of salary for central and state government entities and so on. The rules, regulations and amendments to the income tax is done every year at the time of presentation of the Union Budget by the Central Government and the same will be implemented once it gets a nod from both the Lok Sabha and Rajya Sabha followed by the approval from the President of India.

Types of Taxes in India

There are mainly two types of taxes in India, they are Direct Taxes and Indirect Taxes.

Direct Taxes refers to those taxes which are levied on income and profits. Example of direct tax is the service tax paid by the customers in a restaurant.

Indirect Tax refers to the tax which is levied on the goods and services. Example for the indirect tax is the tax amount deducted from the salary of an individual in the form of tax deducted at source on a monthly basis.

Who are the Tax Payers in India?

In India, individual citizens who are aged below 60 years and having an income limit exceeding Rs 2,50,000 limit per annum has to pay income tax to the government of India. In case of senior citizens who are aged above 60 years and has an income of more than Rs 2,50,000 per annum will have to pay income tax to the government during a fiscal year. (Recently announced Interim Budget of 2019 has raised the income slab limit from Rs 2,50,000 to Rs 5,00,000 per annum)

Apart from this, the following entities who generate income are also liable to pay taxes to the government as per the Income Tax Act 1961.

• Body of Individuals
• Corporate Firms
• Hindu Undivided Family
• Association of Persons
• Companies
• Association of Persons
• All Artificial Judicial Persons

Income Tax – Important Days to Remember

What are the taxable heads of Income Tax in India?

The income tax in India is levied based on the source of Income and accordingly, there are five main heads under which taxes are imposed. They are:

1. Income from Salaries
2. Income from House Property
3. Income from Capital Gains
4. Income (Profits) from Business
5. Income from Other Sources

Income from Salaries

Under the head income from salaries an individual's annual taxable income and pension which he/she receives during a financial year is covered. As per Section 192 of the Income Tax Act, the employer will withhold taxes of the employee if he/she does not fall back within the specified tax bracket.

Income from House Property

An individual will earn income from house property if the said property is rented out by the owner to a tenant and is earning rent on a monthly basis. One should note that the house has to be let out only for domestic use and should not be used for business or professional purposes.

Income from Capital Gains

Any kind of income gained through the sale of capital assets such as land, buildings, debentures, equities, jewellery, bonds and so on constitutes income from Capital Gains. Whenever an individual sells the above-said assets and earns money, then taxes are levied on them under the head Income from Capital Gains.

Income (Profits) from Business

Any business entity which earns profits has to pay tax on it and this constitutes income from the business. As per the Section 30 – Section 43D of the Income Tax Act of 1961, the profits earned by a business or by providing professional services have to pay tax under the head profits and gains from business or profession.

Income from Other Sources

Under this, any kind of income earned by an individual in the following forms is liable to be taxed and they are

• Pension received post the death of a pensioner
• Income from winning a lottery
• Income arising out of horse race winnings
• Income from rental income (other than house properties)
• Income from receiving gifts
• Interest amount received on bonds, government securities, debentures
• Income from dividends