What is Income Tax?

Income tax is one of the government’s most important taxes and is a major source of income for the government. Income tax is levied directly on an individual/organisation/company in order to get a share of the income. This money collected, in return will be put into various government programmes that are launched for the welfare of the people. Income Tax is one of the most actively contributed tax in India and creates the best government-people bonding towards nation building.

Filing income tax returns is the official way of legitimizing your income and earning from multiple sources.

Filing income tax returns is the official way of legitimizing your income and earning from multiple sources. Failing to file income tax returns, by default, means that you have not disclosed your income and wealth which is automatically considered as black money.

There are two types of incomes taxes, namely Direct Tax and Goods and Services Tax, which was enforced recently. Income from certain sources are taxable according to Income Tax of India and they are

  • Income from salary
    Salaries are a taxable income which all employees are paid by their employers, irrespective of the nature of work.
  • Income from capital gains
    This type of income is applied to situations when the person gains income by selling off capital assets. These capital assets include properties like lands, bonds, buildings and equities. Taxes are levied on the person after the asset has been sold depending on the income he/she receives.
  • Income from property such as house
    Tax is levied on the income generated from a house property when it is given out to a third party for rent. This condition stops the owner from using it for business or professional purposes. Home loan EMIs are tax deductible under Section.
  • Income from monetary gains from a business venture or a profession
    Income or profits earned by means of businesses or by professional channels are taxable under applicable rates according to section 30 to 43D of the Income Tax Act.
  • Income from other sources
    Bank interest etc.

What is tax planning?

It is important to plan your tax payment in a very systematic manner by making sure a person meets his tax obligations. This has to be done by keeping one’s social and financial status in mind and further consider your age, investment bracket and financial targets and goals.

Who are the tax payers?

An Indian citizen who is of any age below 60, is liable to pay appropriate income tax if the income they are earning is exceeding 2.5 lakhs. Even in those cases, if the person is above 60 and is earning more than 3 lakhs, that person is also liable to pay taxes to the government of India. Further, listed below are those who are liable to pay taxes.

  • Hindu Undivided Family (HUF)

  • Body of Individuals (BOI)

  • Association of Persons (AOP)

  • Local Authorities

  • Corporate firms

  • Companies

  • All artificial judiciary persons

When should I pay the taxes over my income?

The usual practice is to start collecting taxes only when the financial year comes to an end but to make it easier, and regulate the flow of funds to the government of India for various other programmes, the Income-Tax has enforced ways to pay taxes in advance during the running of the financial year itself. It was named as ‘Pay as you earn’ concept.

How Taru Financial Services can help you with tax planning?

Tax planning is every citizen’s responsibility and it should be done with pride. It also calls for smart calculation of tax, considering deductibles, permissible exemptions and legally recognised reliefs, which are declared under the Income Tax Act. Saving up money by not paying to unnecessary expenses is also part of the tax planning process. Being smart will reduce your tax liability as a tax payer and eases your burden.

There are times when the tax payer tends to invest money in areas which are inefficient and unproductive tax saving channels. This is done by people who are unaware and ill-informed in order to evade tax or reduce it legally. Taru Financial Services will guide you through the process of tax planning keeping the interests of both the client and the country in mind.

How does Income Tax reflect on nation building?

Every citizen above a certain age, who has a source of income, irrespective of nature, is required to file their Income Tax Returns, even in cases where the individual’s income is lesser than the taxable bracket. Filing of IT returns is mandatory and is not associated with tax brackets and income of the individual.

Over the last few years, the Income Tax Department has been digitized by the government of India to ease the process of Income tax collection and Income Tax Returns filing. It has become way easier than before for individuals and organisations to pay their taxes online and track their history of payments through the different portals of Income Tax Department.

Income Tax paid by YOU will directly reflect on the nation building activities. This tax is a major source of income for the government to invest in the infrastructure, better governance and run various public welfare schemes and policies around the country. All tax payers are, in one way or the other, are contributing to the betterment of the country and a brighter future.

What are the Tax Slabs in India?

Income Tax for earning citizens depends on the income bracket that they fall in.(Age is >60)

Income Tax Slabs Lastname
Up to Rs. 2,50,000 N/A
Income between Rs. 2,50,000 – Rs. 5,00,000 5%
Income between Rs. 5,00,000 – Rs. 10,00,000 20%
Income above Rs. 10,00,000 30%

Income Tax for earning senior citizens (Age between 60 and 80)

Income Tax Slabs Lastname
Up to Rs. 3,00,000 N/A
Income between Rs. 3,00,000 – Rs. 5,00,000 5%
Income between Rs. 5,00,000 – Rs. 10,00,000 20%
Income above Rs. 10,00,000 30%

Income Tax for earning Super Senior Citizens (Age >80)

Income Tax Slabs Lastname
Up to Rs. 5,00,000 N/A
Income between Rs. 5,00,000 – Rs. 10,00,000 20%
Income above Rs. 10,00,000 30%

What are the tax exemptions for the income of citizens?

The responsible tax payers are also eligible for certain tax exemptions and deductions upon the tax paid. Below mentioned are few of the most important and revered.

  • Section 80C (Investments)
    This section can help any individual or a HUF reduce their tax up to Rs. 1,50,000 from their total payable tax. If the tax payer has invested in Insurance policies or tuition fees, they are entitled to deduct the tax that is to be levied on that expense. Even if they had forgotten to claim these exemptions and if they had paid the tax in full, they can mention it in the Income Tax Return and claim these deductions nevertheless. A refund of the said amount will be given to the tax payer. This section offers a tax deduction of expenses paid or deposited on insurance policies of either Life Insurance Corporation of India or any other insurance provider. The plan that the tax payer is paying for should be a policy that pays pension from a fund mentioned under Section 10(23AAB). Provident Fund, Public Provident Fund, Fixed Deposit (5 year scheme), housing loan principal, children’s tuition fees and mutual funds investment (Tax saver plans) are few things that allows you to claim tax exemption under this section.
  • Section 80D (Medical Insurance)
    Any tax paying individual or HUF can avail this deduction on tax that is levied on Medical Insurance. This deduction can be availed on a medical insurance that is taken on the policy holder or their spouse or their children and the maximum amount that can be claimed is Rs. 25,000. There is also an additional exemption available on insurance taken on parents and the limit for that is Rs. 25,000 if they are below than 60 years of age and Rs. 50,000 if they are above 60 years of age. In cases where both the tax payer’s age and their parents age is more than 60, the amount that can be claimed under this section goes to the extent of Rs. 1,00,000.
  • Section 24(b) (Home Loan Interest)
    This section allows tax deduction on the interest on a home loan taken by the tax payer to build or purchase a house. The processing fees and all the additional charges that are a part of the loan procedure will also be considered under interest payment. This section can also be used to claim tax deduction on a repair or renovation of an existing house. This section is applicable for both personal and commercial properties. If the owners of a house have it out to somebody else, they can claim full interest payment but tax exemption for self-occupied owners is restricted to Rs. 2 lakhs per annum. Loans taken from family members or friends too are considered under this section.
  • Section 80E (Education Loan)
    One of the most common things a family goes through is availing education loan and this section allows the tax payer to deduct the tax that is to be levied on the interest of the education loan that is availed either for herself /himself, spouse or a person for whom the tax payer is a legal guardian. This section allows deduction of tax on education loan for a maximum of 8 years. There is no limit on the amount that can be claimed under this section.