Income tax plays an essential role in helping governments fund public services and ensure citizens are paying their share in taxes. Every year, you are obligated to pay taxes from your income and fill out forms to accurately document everything for the tax authorities. As such, understanding the basics of income tax is essential for any responsible taxpayer.
From salaried individuals to self-employed workers, all classes of taxpayers have different tax obligations based on several factors covered under income tax sections in detail. To help simplify things, here is a brief overview of what income tax entails, its different types and how they apply.
Understanding income tax
Income tax is a type of tax that a government levies on individuals and businesses for income earned during a financial year. It not only acts as a source of revenue for governments to fund various public projects and services, but it also helps citizens to progress economically. These taxes are calculated based on an individual’s yearly income, and the tax amount is determined by how much they earn and the current income tax slab they fall into.
As taxpayers, it’s essential to report all sources of income to the government by filing ITR (Income Tax Return) during the assessment year. A financial year usually goes from April 1 to March 31 of the next year, while the assessment year follows right after it. Income earned from salaries, savings accounts, FDs (fixed deposits), and capital gains from assets such as house property and mutual funds has to be accounted for in the ITR form so that the applicable taxes can be calculated.
Various types of income tax in India
- Income tax for salaries -When an individual receives salaries for their profession or job role, they must pay income taxes as per the rules set by the government.
- Corporate tax – National and international corporate companies are also required to pay taxes. The rate at which they must pay depends on the structure of the company and its profits over a given period.
- Capital gains tax– Capital gains are revenues generated by taxpayers from the sale of assets held, such as properties, stocks, mutual fund investments, or bonds. It is taxed accordingly based on defined slabs applicable for each category, such as long-term capital gains and short-term capital gains.
- Professional income tax– Several professions may be sourced for such income, including chartered accountants, lawyers, and doctors who practise independently and run their own businesses together as well as entrepreneurs and freelancers.
As such, an understanding of how to fill an income tax return online is important for strategic financial planning and budgeting.
To conclude, income tax is an important source of contribution to the country’s economy, and thus you, as a responsible citizen, must file and pay it on time. When planning for your tax payments, if you find yourself eligible for deductions under income tax, make sure to claim them to reduce your tax liability.