INTRODUCTION
WHAT IS TAX AND WHY TAX IS REQUIRED ?
Tax is a financial obligation imposed by governments on individuals, businesses, or other entities within their jurisdiction. Its primary purpose is to generate revenue that the government can then use to fund public services and infrastructure such as education, healthcare, transportation, and defense. Taxes come in various forms, including income tax, sales tax, property tax, and corporate tax.
There are several reasons why taxes are necessary. First and foremost, taxes provide the government with the funds needed to finance essential public services and projects that benefit society as a whole. These services include maintaining roads and bridges, funding public schools and universities, providing healthcare services, and ensuring public safety through law enforcement and emergency services.
BRIEF HISTORY OF INCOME TAX
The modern income tax system in India took shape with the passage of the Income Tax Act of 1918, which was based on the recommendations of the All India Income Tax Committee. This act introduced a more comprehensive income tax structure, including different tax rates for different income brackets and provisions for exemptions and deductions.
After India gained independence in 1947, the Income Tax Act of 1961 was enacted, replacing the previous legislation. This act formed the basis of India's current income tax regime and has undergone numerous amendments and revisions over the years to adapt to changing economic conditions and tax policies.
BRIEF HISTORY OF INCOME TAX
Key milestones in the evolution of income tax in India include the introduction of the Direct Tax Code (DTC) in 2010, which aimed to simplify and rationalize the tax system. However, the DTC has not been implemented in its entirety, and many of its provisions were incorporated into subsequent amendments to the Income Tax Act of 1961.
Today, India's income tax system is progressive, with tax rates varying based on income levels. It covers a wide range of income sources, including salaries, business profits, capital gains, and other sources of income. The income tax collected contributes significantly to government revenue and is used to fund public services and development initiatives across the country.
Assessment Year (AY):
The assessment year is the year immediately following the financial year in which income is earned and assessed for taxation.
Financial Year (FY):
Also known as the fiscal year, the financial year is the 12-month period during which income is earned. In India, the financial year runs from April 1st to March 31st of the following year.
IMPORTANT TERMS OF INCOME TAX
IMPORTANT TERMS OF INCOME TAX
Income Tax Return (ITR):
An Income Tax Return is a form filed by taxpayers with the tax authorities, declaring their income, deductions, and tax liability for a specific financial year.
Tax Deduction at Source (TDS):
TDS is a mechanism through which a specified percentage of tax is deducted by the payer at the time of making payments such as salaries, rent, interest, etc.
EXEMPTION AND DEDUCTION
Exemptions:
• Basic Exemption: Every taxpayer is entitled to a basic exemption limit, below which no income tax is levied. The limit varies based on the taxpayer's age and residential status.
• HRA Exemption: House Rent Allowance (HRA) received by salaried individuals is partially exempt from tax, subject to certain conditions.
• Leave Travel Allowance (LTA): Exemption is available on expenses incurred for travel within India for self and family, subject to specified limits and conditions.
Deductions:
EXEMPTION AND DEDUCTION
• Section 80G: Donations made to specified charitable institutions and funds are eligible for deduction, subject to prescribed limits.
• Section 80E: Deduction is available on interest paid on education loans taken for higher education for self, spouse, or children.
• Section 80TTA and 80TTB: Deductions are available on interest income earned from savings accounts and specified deposits for individuals and senior citizens, respectively.
Tax Slabs
Very Senior Citizens (Aged 80 years and above):
• Income up to Rs. 5 lakh: No tax (Basic exemption limit)
• Income from Rs. 5 lakh to Rs. 10 lakh: 20%
• Income above Rs. 10 lakh: 30%
Cess: 4% of corporate tax
Surcharge: If the taxable Income is more than Rs.1 crore but less than Rs.10 crore, the surcharge levied is 7%. If the taxable Income is more than Rs.10 crore, the surcharge levied is 12%.
Non-resident Indians: For non-resident Indians, irrespective of their age, the exemption limit is up to Rs.2.5 lakh.
Important Points
In case your net Income is more than Rs.50 lakh but less than Rs.1 crore, apart from a 4% cess, a 10% surcharge is also levied. If the net is above Rs.1 crore, a 15% surcharge is levied.
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