The essential basics of income tax in India
Income tax is a levy imposed by the government on your total income. Whether you are an employee, self-employed or business owner, you will have to pay income tax depending on the category to which your income tax bracket belongs.
It can be a daunting topic, and it’s no surprise that many of us don’t know much about it. Calculating your tax is trickier than it looks, and finding ways to lower your taxes through tax-saving schemes takes a lot of research – you can call it an art form.
This article details the basics of the income tax slab and explains what it is and how it is calculated. It also lists the different categories of tax saving schemes under which taxes can be classified. So be sure to read on.
What is meant by “previous year” in income tax jargon?
Your tax year lasts 12 months, beginning on April 1 and ending on March 31 of the following year. Whether you start your job in January or May, your tax year always ends on March 31 and a new one begins on April 1. This means that it is important to plan your annual tax expenditures.
What is the assessment year?
The valuation year is a term often heard in connection with the tax return. This is the next year after a previous year in which you will “contribute” and file your return for the previous year. Thus, the assessment year 2020-21 refers to the fiscal year 2019-2020 (i.e. from April 1, 2019 to March 31, 2020).
Section 80C tax savings schemes
You can save up to INR 1.5 lakh under Section 80C. Here are some tax saving plans you might consider:
Public provident fund
One of the most popular tax savings plan deductions claimed under Section 80C is deposits in a public provident fund account. When you open a PPF account, you must deposit a minimum of INR 500 and a maximum of INR 1.50,000 per year. Money deposited into a PPF account is compounded at an interest rate of 8% per annum as you deposit more money in subsequent years to claim deductions. A PPF account can be easily opened with the help of banks.
Fixed rate term deposits
You can protect your capital while enjoying a return by investing in term deposits. If the interest income is taxable, you will have to keep the money invested for at least 5 years to benefit from the tax advantages provided for in article 80C of the income tax slab.
Equity Linked Savings Plans
ELSS, one of the few mutual fund tax-saving plans permitted under Section 80C, has recently gained popularity among investors as its historical performance has outperformed other tax-saving plans. tax available. On top of that, it also has a lock-in period of just 3 years, making it one of the most popular options to save money on taxes.
Withholding Tax (TDS) – What does it mean?
Tax withheld at source (TDS) is the amount of income tax that is deducted at source from the payment. The payer must deduct an amount of tax according to the rules prescribed by the service of income tax slab. If you earn interest on a fixed deposit, the bank also deducts part of your interest as taxes. Since the bank does not know your income tax platethey usually deduct TDS @ 10% unless you haven’t mentioned your PAN.
Income you have to pay tax on
In addition to your salary, you are also required as an individual to pay taxes on the income generated by your deposits and savings with banks or any other financial institution. Here is a complete list of the sources of income on which you must pay taxes:
- Wage income – This includes income from sources such as your job, allowance, vacation cash, or any other cash item you receive for providing services to an organization.
- Income from home ownership – This is the income generated from renting out a property that you own.
- Capital gains income – This includes any income generated from transactions you make in fixed assets such as mutual funds or stocks.
- Business or professional income – As the name suggests, if you conduct business processes in addition to your job, you must pay taxes on the income generated through this.
- Income from other sources – This includes interest income accrued in savings accounts, bank deposits, gifts, etc.
What are tax returns?
People who earn money are legally required to file a tax return. Even if your income is below the tax bracket, you must file your return. Tax returns are filled out with forms that tell the government how much money you earned that year and how much tax was withheld.
The income tax slab department in India has made tax payment easier and more convenient for individuals and businesses. Individuals can pay their taxes online or file their tax returns, and businesses can track their tax payment history on several useful websites these days.
By paying income tax, you help fund the creation of important national infrastructure and improvements for the government. Your tax dollars support many services, including public transit, community infrastructure, and law enforcement.
Although calculating your income tax at first glance may seem like a daunting task, by understanding the different tax saving schemes you can be assured that your taxes are calculated correctly. This can help you avoid fines and penalties later when you need to file your taxes.
By following the steps above, in addition to noting the specific laws that apply to your own situation, you will know how to calculate your taxes and how they relate to the law in India.
Overall, it’s important to remember that understanding the basics of income tax brackets will help you make smart financial decisions in the future.