Article#9: Income Tax
Most of us usually go with paying the income tax, but may or may not file the returns and don’t get into the details of it. If you would like to know, then you have to go through this article as this one is to create a way more awareness on what is income tax? Why do the governments impose income tax? How is it calculated and collected? What is form 16? Why should we file the IT returns? And so on.
Income Tax can be defined as the percentage of income that government imposes on every salaried individual, corporate firms, companies, Association of persons and on anyone who generates income. The law that governs the income tax is Income Tax Act, 1961. The government uses this amount for infrastructural development, to pay the salaries of those people working as state or central government employees and to serve the public. The income tax that every one of us pay forms the major part of revenue for the government. The Central Board of Direct Taxes (CBDT) is responsible for managing all this revenue.
Taxes are usually calculated based on the yearly income of an individual. As per the Income Tax Act, the financial year starts on the 1st of April and ends on 31st March. The year in which the income is generated or earned is called “Previous year” and the year in which the income is charged to tax is called “Assessment year”. For all the individuals below the age of 60, the income tax would be nil if the total income is less than 2.5 lakhs and 10% of the amount by which it exceeds 2.5 lakhs if the total income is in between 2.5 - 5 lakhs and 20% of the amount by which it exceeds 5 lakhs if the total income is in between 5-10 lakhs and 30% of the amount by which it exceeds 10 lakhs if the total income is greater than 10 lakhs. For Senior citizens, above the age of 60, the minimum amount from which the income tax starts is 3 lakhs and the rest percentages and limits remain the same as above. For Super Senior citizens, above the age of 80, the minimum amount from which the tax starts is 5 lakhs and 20% of the amount by which it exceeds 5 lakhs if the total income is in between 5-10 lakhs and 30% of the amount by which it exceeds 10 lakhs if the total income is above 10 lakhs. For firms, corporates and Domestic companies, there is a flat rate of 30% income tax on the total income declared. For Domestic companies, if their income exceeds 1 crore, a surcharge of 5% is levied.
Taxes can be collected by the government in different ways.
The first way is advance tax and self-assessment tax in which the tax payers voluntarily pay into designated banks.
The second way is TDS (Tax Deducted at Source). The easiest way to understand TDS is by considering the place where you are working. When you check your payslip, you’ll be able to find that income tax is automatically getting deducted. This is nothing but the Tax deducted at source wherein the source is your company or organization or employer. In this case, a percentage of overall payment made to you is within held by the source. Income earned by means of salary, lotteries, interests from banks, rent payments, payment to freelancers, etc. come under the category of TDS. The advantage of TDS is the responsibility for tax collection can be equally shared between the deductor and the collection agencies. It also allows the government to have steady source of revenue. At the same time, there is no scope for an individual who would like to avoid paying the tax. However, TDS is exempted on some payments made to government, RBI, Refund from IT Department, cooperative societies, etc. A deductor can always claim for refund if an excess amount is deducted from an individual by mistake through TDS. In all the cases, the employer/deductor is supposed to provide a TDS certificate or Form 16 and 16A confirming the amount of tax deducted. In the case wherein the employer/deductor fails to deduct the tax by TDS, then they have to pay an interest on the amount that is due to government under section 201 of the Income Tax Act and the employee is nowhere related or responsible for such issues.
The third way is TCS (Tax Collected at Source). Let’s have an example for this to understand. Say, Mr. A is selling some goods to Mr. B. As part of applying TCS, Mr. A is supposed to collect not only the amount for which he is selling the goods to Mr. B, but also the taxable amount on the goods which he is selling. If Mr. A is selling the goods for Rs.100 and the taxable amount is Rs.10, then he is supposed to collect Rs.110 from Mr. B. In this way, the tax is collected at the source, i.e. Mr. A and then it is paid to the government later. This provision is under Section 206C of the income tax act, 1961. The type of goods applicable for TCS are liquor of alcoholic nature, Timber wood, Toll plaza, Minerals such as coal or iron, etc. There are cases wherein the TCS can be lowered or exempted like when the buyer approaches the Assessing officer for collecting tax at a lower rate with the help of form 13 saying that his total income is justifiable for the lower rate or the buyer can declare form 27C that he is eligible for total exemption from paying TCS provided the goods bought are for the purpose of manufacturing or processing and not trading.
Now, coming to form 16, it is nothing but an important document provided by an employer to the employee that includes all the details of tax deductions and net paid income and is applicable in the case of TDS. With the help of Form 16, one can file their Income Tax Return easily. There are sections like 80C, 80CCC, 80CCD and others like 80E, 80TTA in form 16 that mention on the investments made by an individual for tax exemption. The investments like NSC, LIC, and Pension Schemes come under 80C, 80CCC and 80CCD respectively. 80D is exclusively for health insurance premiums paid. 80E is for interest paid on education loans. 80TTA deals with the tax savings that are applicable on interest earned in savings bank account, post office or cooperative societies.
It is as important to file the IT Returns as paying the income tax to the government. That is the way in which you manage to create your financial record with the tax department which in turn pays a smooth path for you when you avail any kind of home loan, personal loan or Vehicle loan and even when you apply for Visa.
There are people who don’t want to pay the income tax. Some may go legally and some other by illegal means. The latter is known as “Tax Evasion”. This can happen in many ways like smuggling, submitting false IT Returns, Inaccurate financial statements, not reporting income, Bribing the officials, etc. If such cases come into picture, then the government imposes penalty of either double or triple the taxable amount. It can also apply to an employer who is not deducting the tax of his employee by TDS. So, the best thing to do is to ensure that all taxes are paid when they are due.
To add my personal experience, during the initial days of my career, I didn’t have the idea on submitting IT Returns. So I used to e-file the returns by taking help from my senior colleagues through websites like TaxSmile, IncomeTaxIndia, etc. But later, I found an easy website, ClearTax wherein the tax can be filed within minutes of time as the user interface is simple to understand. It’s enough only you upload the form 16 and the remaining things are taken care by the site. Of course, if you wish to edit something, you can do in some places which you’ll be able to easily figure out during the navigation process in this site.
The ultimate message here is pay the applicable amount of tax to the government after all your exemptions and also as a responsible citizen, ensure that you file the IT-Returns every year which would help you in dealing with the other aspects in future.
With this, I would like to conclude my Article#9, “Income Tax”..The next article is going to be based on something that everyone has to give a try, in-short it’s about the feel good moments.:-) See you
:-) :-)
Income Tax can be defined as the percentage of income that government imposes on every salaried individual, corporate firms, companies, Association of persons and on anyone who generates income. The law that governs the income tax is Income Tax Act, 1961. The government uses this amount for infrastructural development, to pay the salaries of those people working as state or central government employees and to serve the public. The income tax that every one of us pay forms the major part of revenue for the government. The Central Board of Direct Taxes (CBDT) is responsible for managing all this revenue.
Taxes are usually calculated based on the yearly income of an individual. As per the Income Tax Act, the financial year starts on the 1st of April and ends on 31st March. The year in which the income is generated or earned is called “Previous year” and the year in which the income is charged to tax is called “Assessment year”. For all the individuals below the age of 60, the income tax would be nil if the total income is less than 2.5 lakhs and 10% of the amount by which it exceeds 2.5 lakhs if the total income is in between 2.5 - 5 lakhs and 20% of the amount by which it exceeds 5 lakhs if the total income is in between 5-10 lakhs and 30% of the amount by which it exceeds 10 lakhs if the total income is greater than 10 lakhs. For Senior citizens, above the age of 60, the minimum amount from which the income tax starts is 3 lakhs and the rest percentages and limits remain the same as above. For Super Senior citizens, above the age of 80, the minimum amount from which the tax starts is 5 lakhs and 20% of the amount by which it exceeds 5 lakhs if the total income is in between 5-10 lakhs and 30% of the amount by which it exceeds 10 lakhs if the total income is above 10 lakhs. For firms, corporates and Domestic companies, there is a flat rate of 30% income tax on the total income declared. For Domestic companies, if their income exceeds 1 crore, a surcharge of 5% is levied.
Taxes can be collected by the government in different ways.
The first way is advance tax and self-assessment tax in which the tax payers voluntarily pay into designated banks.
The second way is TDS (Tax Deducted at Source). The easiest way to understand TDS is by considering the place where you are working. When you check your payslip, you’ll be able to find that income tax is automatically getting deducted. This is nothing but the Tax deducted at source wherein the source is your company or organization or employer. In this case, a percentage of overall payment made to you is within held by the source. Income earned by means of salary, lotteries, interests from banks, rent payments, payment to freelancers, etc. come under the category of TDS. The advantage of TDS is the responsibility for tax collection can be equally shared between the deductor and the collection agencies. It also allows the government to have steady source of revenue. At the same time, there is no scope for an individual who would like to avoid paying the tax. However, TDS is exempted on some payments made to government, RBI, Refund from IT Department, cooperative societies, etc. A deductor can always claim for refund if an excess amount is deducted from an individual by mistake through TDS. In all the cases, the employer/deductor is supposed to provide a TDS certificate or Form 16 and 16A confirming the amount of tax deducted. In the case wherein the employer/deductor fails to deduct the tax by TDS, then they have to pay an interest on the amount that is due to government under section 201 of the Income Tax Act and the employee is nowhere related or responsible for such issues.
The third way is TCS (Tax Collected at Source). Let’s have an example for this to understand. Say, Mr. A is selling some goods to Mr. B. As part of applying TCS, Mr. A is supposed to collect not only the amount for which he is selling the goods to Mr. B, but also the taxable amount on the goods which he is selling. If Mr. A is selling the goods for Rs.100 and the taxable amount is Rs.10, then he is supposed to collect Rs.110 from Mr. B. In this way, the tax is collected at the source, i.e. Mr. A and then it is paid to the government later. This provision is under Section 206C of the income tax act, 1961. The type of goods applicable for TCS are liquor of alcoholic nature, Timber wood, Toll plaza, Minerals such as coal or iron, etc. There are cases wherein the TCS can be lowered or exempted like when the buyer approaches the Assessing officer for collecting tax at a lower rate with the help of form 13 saying that his total income is justifiable for the lower rate or the buyer can declare form 27C that he is eligible for total exemption from paying TCS provided the goods bought are for the purpose of manufacturing or processing and not trading.
Now, coming to form 16, it is nothing but an important document provided by an employer to the employee that includes all the details of tax deductions and net paid income and is applicable in the case of TDS. With the help of Form 16, one can file their Income Tax Return easily. There are sections like 80C, 80CCC, 80CCD and others like 80E, 80TTA in form 16 that mention on the investments made by an individual for tax exemption. The investments like NSC, LIC, and Pension Schemes come under 80C, 80CCC and 80CCD respectively. 80D is exclusively for health insurance premiums paid. 80E is for interest paid on education loans. 80TTA deals with the tax savings that are applicable on interest earned in savings bank account, post office or cooperative societies.
It is as important to file the IT Returns as paying the income tax to the government. That is the way in which you manage to create your financial record with the tax department which in turn pays a smooth path for you when you avail any kind of home loan, personal loan or Vehicle loan and even when you apply for Visa.
There are people who don’t want to pay the income tax. Some may go legally and some other by illegal means. The latter is known as “Tax Evasion”. This can happen in many ways like smuggling, submitting false IT Returns, Inaccurate financial statements, not reporting income, Bribing the officials, etc. If such cases come into picture, then the government imposes penalty of either double or triple the taxable amount. It can also apply to an employer who is not deducting the tax of his employee by TDS. So, the best thing to do is to ensure that all taxes are paid when they are due.
To add my personal experience, during the initial days of my career, I didn’t have the idea on submitting IT Returns. So I used to e-file the returns by taking help from my senior colleagues through websites like TaxSmile, IncomeTaxIndia, etc. But later, I found an easy website, ClearTax wherein the tax can be filed within minutes of time as the user interface is simple to understand. It’s enough only you upload the form 16 and the remaining things are taken care by the site. Of course, if you wish to edit something, you can do in some places which you’ll be able to easily figure out during the navigation process in this site.
The ultimate message here is pay the applicable amount of tax to the government after all your exemptions and also as a responsible citizen, ensure that you file the IT-Returns every year which would help you in dealing with the other aspects in future.
With this, I would like to conclude my Article#9, “Income Tax”..The next article is going to be based on something that everyone has to give a try, in-short it’s about the feel good moments.:-) See you
:-) :-)
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