Beginner’s Guide For Income Tax

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Income Tax laws are framed and imposed by the central government. A tax is imposed on the taxable income of the individuals, companies, firms, Hindu Undivided Families (HUFs), local authorities, and other income-generating entities or associated persons. 

Depending on the residential status of the taxpayers, taxation laws are amended and enforced. Every qualified Indian resident is eligible to pay taxes on comprehensive income from all sources. 

The taxpayer amount varies in every fiscal year as per the market fluctuations and inflation status in the country. Following the taxation rules, the individuals have to file for Income Tax Returns (ITR). 

Fundamentals of Income Tax Returns?

To file the information and data about the income to the tax authorities, the individuals have to go through the process of income tax filing and returns. With the computation of gross income, the tax liability of the individuals is fixed during the particular financial year. 

Inadvertently, if the taxpayer exceeds the paying limit of the taxes, then he/she is eligible for receiving an income tax refund from the tax department. 

Taxation laws say, individuals or businesses must file tax returns within a financial year. Returns can be in the form of income such as salary, capital gains, property profits, or generated through dividends, interests, or other sources of income.

Tax returns have a specified date or deadline and the tax returns should be filed within that period. Upon failing to abide by the due dates, the individuals shall be liable for a penalty. 

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Punishment for Tax Evasion 

Every individual falling in the perimeter of income tax slabs shall file for income tax returns within the due date. To avoid willful tax evasion, you can compute your liable taxes using an income tax calculator available online and save yourself from the stringent judicial laws. If they fail in doing so, they have to pay a penalty of Rs. 5000. Exceptionally, the assessing officer may increase or decrease the penalty amount. 

Tax evasion is a heinous crime and willful tax evasion might land you in prison. Depending on the circumstances, the imprisonment may vary from 3 months to 2 years. 

Understanding the Crucial Aspects 

1. Previous Year

According to income tax laws, the income earned in the current year is taxable in the following year. The year in which the individuals earn their income is referred to as the previous year. The previous year is always confined to 12 months. 

2. Assessment Year

The assessment year commences after the financial year. In this year, the income earned during the financial year is analyzed, assessed, and taxed. From the perspective of income tax, the individuals or businesses earn during the financial or fiscal year and are liable to pay taxes in the assessment year. 

3. Deductions

Tax deductions reduce your gross income. Enabling tax deductions, the Income Tax Department allows you to decrease your tax liability. 

Taxable Income = Gross Income – Deductions

Taxpayers are free to choose the standard deduction or itemized deductions. If the taxpayer chooses to itemize deductions, then the deductions are considered for the amount above the standard deduction limit. 

4. Section 80 C

Tax deductions are taken into consideration under section 80 C. Being most popular among taxpayers, it allows the maximum deduction of Rs. 1.5 lakhs every year from the total income of the taxpayers. Individuals and HUFs are eligible to avail of the benefits of this deduction. 

Investments such as PPF (Public Provident Fund), EPF (Employees’ Provident Fund), LIC (Life Insurance), equity-linked schemes, deposits for a home loan, stamp duty, Sukanya Smriddhi Yojana (SMY), Senior citizen scheme, FD (fixed deposits), etc. are eligible for deduction advantages. 

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The tax deduction is further categorized under:

  • Section 80 CCC – This section enables the deduction of payment for annuity pension plans received including interest or bonus accrued is taxed in the year of receipt. 
  • Section 80 CCD (1) – The tax department deducts the taxation towards NPS (National Pension Scheme) of the individuals. 
  • Section 80CCD (1b) – The amount deposited in the NPS scheme can draw down additional tax liability of up to Rs. 50000. Atal Pension Yojana also falls in the tax deduction category under this section. 
  • Section 80 CCD (2) – Employers contribute 10% of the salary of the individuals. Non-salaried individuals or self-employed individuals are exempted from tax deduction under this section. 

5. Tax Slabs

In India, individual taxpayers have levied taxes based on the slab system. For varying ranges of income, taxation differs. Taxation is levied as per the union budget of the financial year on the income ranging from Rs. 2.5 lakhs and above. 

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Why Should You File For Income Tax Returns?

According to the Income Tax Act, individuals or businesses within certain income brackets are liable to pay taxes. Following entities have to necessarily file their ITR:

  1. As 60 years is the retirement age of the individuals, hence, individuals at or below this age with an income of Rs. 2.5 lakhs will be required to file for ITR. Senior citizens from 60-79 years of age have an extended limit to Rs. 3 lakhs and it increases further for the super senior citizens at the age of 80 or above. 
  1. Registered Companies 

The registered companies that capably generate income throughout the year irrespective of whether they succeeded in making profits or not shall pay taxes. 

  1. If you want to claim a refund on the additional tax deduction or paid taxes must file an ITR.
  1. Individuals with assets or financial instruments saved outside India. 
  1. Foreign companies that possess treaty benefits on transactions done in India. 
  1. NRIs accruing more than Rs. 2.5 lakhs in India in one financial year. 

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Taxation for HUFs 

Under section 2 (31) of the Income Tax Act, HUF (Hindustan United Family) is portrayed as a person and a separate entity for taxation assessment. 

  • A HUF is taxed the same as the individuals based on the slab rates. 
  • Liable to pay Alternative Minimum Tax, the payable taxes for a HUF is below 18.5% (with cess and surcharge) of Adjusted Total Income followed by certain terms and conditions.  

Wrapping Up

Individuals or entities falling under the taxable brackets have to pay taxes to refuel the Indian economy. Based on the tax slabs and budget of the fiscal year, tax is levied on the income or profits of the individuals. Individuals indulged in tax evasion cases are liable to be imprisoned. 

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