The Role of Income Tax in Nation Building
By Tashriq Ahmad
Each country must have infrastructures and equipment for its citizens which must correspond to their standard of living. It requires a large amount of money to create advanced infrastructure and provide better facilities to its citizens, therefore, most democratic countries tax their citizens to increase the required amount. Hence, it is the need of the hour for laymen to understand the concept of tax.
Taxes are the main source of revenue collection for the government so that the government can use these revenues for infrastructure development, provision of health care, education and other social welfare programs for the citizens.
- Types of taxes
There are mainly two types of taxes, one is known as direct tax and the other is indirect tax.
Direct tax is levied directly on earned income, for example income tax.
Indirect tax is levied on goods and services for which the consumer pays when purchasing goods or services.
What is income tax?
Income tax is a type of tax levied by the government on income earned during a financial year by individuals and businesses. The word “income” has a very broad and inclusive meaning which is defined under Section 2(24) of the Income Tax Act, without going into too much depth we will understand it in a simple way:
Salary income: In the case of an employee, any amount received from an employer, in cash or in kind, will be considered as income of the person. The amount received by an employee from his employer falls under the item “Income from wages”. The amount of salary includes base salary, dearness allowance, medical care, transportation, annuity, gratuity, salary advance, allowances, commission, perquisites in lieu of salary and retirement benefits, etc.
Income from home ownership:
Any rental income from residential or commercial property will constitute income and this is taxable under the Income Tax Act 1961.
Business or professional income: Income from a business or profession is taxable under the heading “profits and gains from a business or profession”. Taxable income is net expense.
Capital gains income: Capital gain can be defined as any profit made from the sale of a capital asset (such as a house, property, jewelry). The profit received falls under the category of income and income tax must be paid on the income so received. This tax is called capital gains tax and can be long-term or short-term.
Income from other sources: Any income which does not fall under the four heads of income above is taxed under the head of income from other sources, for example, interest from the savings bank, family pension or gifts received, investments under form of interest, dividends and commissions, the lottery you win or reality TV shows like “Kaun Banega Crorepati”, etc., all these incomes are taxable.
Income tax plates:
Considering the capacity of each taxpayer, the government levies higher income tax for those who earn more, moderate income tax for those with moderate income, and no income tax for those who earn very less . There are different tax brackets for each taxpayer depending on their income. The current tax slabs for the 2022-23 assessment year are as follows:
|Income tax slab for fiscal year 2022-23/AY 2023-24If you are claiming a deduction and an exemption|
|Income bracket||Individual (aged under 60)||Elderly (aged 60 and over but under 80)||Super Senior Citizens (aged 80+)|
|Up to Rs. 2,50,000||None||None||None|
|Rs. 2,50,001 to 3,00,000||5%||None||None|
|Rs. 3,00,001 to 5,00,000||5%||5%||None|
|Rs. 5,00,001 to 10,00,000||20%||20%||20%|
|Rs. 10,00,001 and above||30%||30%||30%|
|If you do not claim the deduction and exemptions|
|Income bracket||Income tax rate|
|Up to Rs. 2,50,000||None|
|Rs. 2,50,001 to 3,00,000||5% (with Section 87A tax refund)|
|Rs. 5,00,001 to 7,50,000||ten%|
|Rs. 7,50,001 to 10,00,000||15%|
|Rs. 10,00,000 to 12,50,000||20%|
|Rs. 12,50,001 to 15,00,000||25%|
|Rs. 15,00,000 and above||30%|
Benefits of income tax
The concept of income tax is very progressive and productive. Funds and capital are not equally distributed among the people of a country. Some have abundant funds; some have moderate funds; some have meager funds, and some have almost no funds. The government itself has neither funds nor capital; it generates funds and capital from taxes. Income tax is the most powerful and effective way to collect these funds from people based on their capacity and ability to pay tax.
The main objective of any government is to achieve an equitable distribution of wealth. Direct taxes in India play an important role in achieving this equality. These taxes are designed progressively; they are beneficial for reducing income inequality. The government collects higher taxes from taxpayers who can afford it and uses that money to help the poor, reducing the harmful effects of income inequality.
This type of tax is productive and elastic. The revenue generated by these taxes increases or decreases automatically depending on changes in the national economic system of the country.
Thus, we should pay income tax to build our nation, income collected from income tax is directly spent on national development projects. It is used to build new roads, highways, flyovers and railways, etc. It is also used to buy new defense equipment and new defense research for the security of our country and to build new hydroelectric, solar, nuclear and thermal power generation units for a progressive country. It is also used for space research and sending new rockets and installing satellites in space. All national development projects are managed and financed by these income tax revenues. In addition, contributing to development and national security, income tax is also used for social protection schemes for the poorest and weakest sections of society. It is an excellent tool for building a progressive nation; therefore, everyone must honestly pay income tax for the prosperity and progress of our nation. Finally in my words:
“Income Tax Makes a Dream Nation”
“Paying income tax for Dream India”
“Love income tax, love India”
“My income tax for my India”
The author is an Advocate at the Supreme Court of India