Income Tax System in India
Income tax in India is the tax imposed by government on a person who earns income in India and is liable with Income Tax Act passed by parliament of India. The Income earned within a period of twelve months is taken into consideration for Income Tax calculation within the period of 1st April to 31st March.
Income Tax in India has seven categories divided for the people who are taxable and should fall in the following categories:
2. Hindu Undivided Family [HUF]
3. Association of Persons [AOP]
4. Body of individuals [BOI]
5. Firms and Companies
6. Local authority
7. Artificial juridical person
There are terminologies used to distinguish between Incomes. In India, Income is considered on the following basis:
a. For a salaried person income is considered as all the salary received from the employer in cash or as a facility.
b. For a businessman his profit in the business is taken as his net income. Income is also liable as per the investments done. Income Earned is divided into five basic terms:
1. Income from Salary
2. Income from House property
3. Income from Business or Profession
4. Income from capital gains
5. Income from other sources
Tax Calculation on Income in India is calculated on three ways:
1. Payment by a person to a designated bank
2. Taxes Deducted at Source known as TDS on behalf of payment received
3. Taxes collected at Source known as TCS at the time of spending.
There are various ways by which we can submit taxes to the Indian government. One is use of Challen form and filling it properly then submit to respective banks or Income Tax offices in India. One can file his Income tax online also.
If one wishes to pay tax in advance then following is the manner tax is calculated according to Act:
Status By 15th June By 15th Sept 15th Dec 15th March
Corporate 15% 45% 75% 100%
Non-Corporate nil 30% 60% 100%
Income Tax Return filing in India:
Though the Return filing is made easy in India by the use of online system yet we need some financial advisors which took care of our returns. This is indeed a good thing which make the process easier and professionals have their follow ups with Income Tax Department in India.
ITR is nothing but communication between Income Tax Department in India and individuals for their payments of income and taxes at the end of Financial year. One has to fill in ITR form which suits for his income and submit it to the Income Tax Department which in turn returns a ITR-V form which shows the ITR details for the person.
While filing Income Tax Returns in India one should submit and must have following documents with him:
1. Form 16/ Form 16A
2. Permanent Account Number
3. Bank Account Number,
4. Details of other income like Interest, Capital Gains, Rental Income etc.
It's really easy while you are honest with your tax payments, as the Income Tax Department says: "File, Smile and Go".
Last but not least I will like to tell some important steps which should be taken care and well understood to pay Taxes in India.
If your taxable income exceeds the basic exemption limit (Rs.1,00,000), then you must file your return of income. Even in the case that your total income exceeds the basic exemption limit after investments, it is mandatory to file a return of income. You also need to file your return if you are claiming a refund.
2. Calculation of Income Tax:
Calculations are done on the basis of following heads:
(a) Salaries (b) Income from Property (c) Profits and Gains of Business or Profession (d) Capital Gains, and (e) Income from Other Sources.
After calculating the income under all the heads, the deductions done as investment are subtracted. The balance will be the taxable income. Tax will be calculated on this net income.
Following are the Income Tax slabs for this current financial year:
The tax rates applicable to Individuals, Hindu Undivided Family, Association of Persons and Body of Individuals for the assessment year 2009-2010 are given below.
For Individual being a woman resident in India and below the age of 65 years :
1. Up to Rs. 1,80,000 ----- NIL
2. Rs. 1,80,001 - Rs.3,00,000 --- 10% of the amount by which the total income exceeds Rs. 1,80,000
3. Rs.3,00,001-Rs.5,00,000 ----- Rs. 12000 plus 20% of the amount by which the total income exceeds Rs. 3,00,000
4. Above Rs. 5,00,000 ---- Rs. 52,000 plus 30% of the amount by which the total income exceeds Rs. 5,00,000
For Individual other than a woman, a resident in India and below the age of 65 years :
1. Up to Rs. 1,50,000 ---- NIL
2. Rs. 1,50,001 - Rs.3,00,000 --- 10% of the amount by which the total income exceeds Rs. 1,50,000
3. Rs. 3,00,001 - Rs.5,00,000--- Rs. 15,000 plus 20% of the amount by which the total income exceeds Rs. 3,00,000
4. Above Rs. 5,00,000 ----- Rs. 55,000 plus 30% of the amount by which the total income exceeds Rs. 5,00,000
Surcharge: There will be 10% surcharge applicable on the tax paid when income exceeds Rs.10,00,000/-.
3. Taxes Payments:
The total tax payable on income has to be paid before filing the return of income to Income Tax Department. Ensure that it is done before the return of income is filed. If any interest is payable on account of advance tax, or shortfall of advance tax or delay in filing of the return, that also should be paid prior to filing the return of income. Non-payment of taxes leads to payment of interest as well as penalty.
4. Completion of Income Tax Return:
We have to choose form for filing the return. The most commonly used forms are:
Form 2D (Saral): This is the form for entities other than companies;
Form 2E (Naya Saral): This is individuals and Hindu Undivided Families (HUFs) not having business income or capital gains or agricultural income.
PAN is a mandatory parameter without which return is not accepted. There is a penalty of Rs 10,000 for misquoting PAN.
5. Proofs and Documentation:
Documentation required should be furnished and proper which includes:
• Return of income, duly filled in and completed.
• Computation of total income, if required.
• Proof of taxes paid (original copy of Form 16, advance tax and self-assessment tax challan etc.)
If you do not attach these documents, the tax authorities might treat your return of income as defective. These should be corrected within a provided time period of 15 days
In addition, you need to file proofs of investments/payments made to claim deductions such as the following:
• Original copies of donation receipts.
• Proof of investment in PPF, LIC, NSC, pension plans.
• Receipt for payment of mediclaim.
• Original certificate for housing loan interest.
6. Filing Your Income Tax Return:
These steps have no meaning till the return of income has actually been filed. The due date for filing the return of income is 31 July.
7. Revised Return:
You can revise your returns if you have made some mistakes which need to be corrected within the assessment year.
8. Late Return Filing:
One can file late returns within one year from the end of the assessment year. Interest is payable on the unpaid amount of tax. A penalty of Rs 5,000 is applied if the income-tax return is not paid before the end of the assessment year.
So be sure you file your returns and not to be penalized under Indian Government Laws.
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