Everything You Should Know About Income Tax

You are not allowed to take your full salary when you start earning money at any kind of job. Instead, you receive your salary minus any taxes paid to the government. You still have your “net” salary.

The term “income tax” refers to this payment paid to the government. You’ve probably heard this phrase before in a few financial discussions. But did you know that you can quickly reduce your tax payments with the right information? So, if you’re also interested in learning more about income tax and income tax filing, keep reading.

Types of taxes collected by the government

Every government uses two different approaches to collecting taxes from the common people. They are:

1. Indirect tax: it is placed on producers first before being gradually transferred to the customer through a network of intermediaries. It is imposed on products and services, not on specific purchasers. It is gathered by the seller or producer. Examples include value-added taxes and sales taxes (VATs).

1. Direct tax: A tax that is paid upfront by the organization or individual that has been charged for it. Examples include taxes on assets, real estate, and income that are all paid by the individual taxpayer directly to the government.

About income tax

Income tax is part of your income. You pay this to the government for the money you produce. These tax payments provide the government with the money it needs to carry out its day-to-day functions. 

Many individuals consider filing taxes with the income tax department to be a rather difficult chore. And if you are paying taxes for the first time, then it could even feel impossible to you. So if you are a first-time taxpayer, we have included the key terms to help you quickly understand the fundamentals of income tax.

Financial year vs. assessment year

For income tax filing, it is important to know the difference between the financial year and the assessment year.

• Financial year – Also known as the previous year, is a 12-month period that runs from April through March of the following year. For instance, suppose you begin to make money in November 2022. Although your first tax year would run from April 2022 to March 2023, you would be subject to tax on any income earned from November 2022 through March 2023.

• Assessment Year – It is the year that follows the financial year. Simply put, it is the year in which you will submit your prior-year return. Therefore, according to the above example, your financial year is 2022–2023. The assessment year in this situation would be after March 31, 2023. This is because you will be filing your income tax return anywhere between April and September 2023.

Sources of income that fall under the purview of Income Tax

• Salary income – The government’s most evident source of income tax is your monthly wage. This is true since it is considered to be your main source of income for tax purposes. 
• Income from business – Next is income from business and profession. This is the pay you receive for operating your firm or carrying out your line of work. You must pay taxes on your company profits. The costs might be subtracted from the taxable amount.
• Income from capital gains – Capital gains tax is another type of tax. When you get a profit or gain from selling a capital asset, you must pay this tax. Apartments or flats, stocks, real estate, mutual funds, gold, and other items are examples of assets in this situation.
• Income from house property – The second line is your rental property revenue. Income from house property is any sort of rental income that results from a piece of real estate, such as a home, business, or building. This income is also taxed. 
• Income from other sources – Finally, revenue from other sources refers to all other income that does not fit into one of the above categories. These include any dividends received, interest on bonds and deposits, winnings from lotteries, monetary gifts, etc. that are subject to taxation under this category.

Tax deductions on income tax

The idea of a deduction is to lower taxable income. We spend our money on several things. There is no tax break for purchasing luxuries, but there are several tax regulations that lower your tax burden. These encourage the practice of saving money. This is accomplished by deducting specific expenses from your income. This lowers your overall income and your income tax.

It may be computed as follows: Taxable Income = Gross Income (Sum of All Income) – Deductions

Therefore, if your deduction is higher, your tax burden will be smaller. 

Under Section 80 (Sections 80C to 80U) of the Income Tax Act, an individual is entitled to several deductions. These deductions are as follows:

• 80C – Investments
• 80CCC – Insurance Premium 
• 80CCD – Pension Contribution
• 80E – Interest on Education Loan
• 80EE – Interest on Home Loan
• 80D – Medical Insurance
• 80DD – Disabled Dependant
• 80DDB – Medical Expenditure
• 80U – Physical Disability
• 80G – Donations
• 80GG – House Rent Paid
• 80GGB – Company Contribution
• 80GGC – Contribution to Political Parties
• 80RRB – Royalty of a Patent 
• 80TTA – Interest on Savings Account
• 80TTB – Interest Income

Finally, determining the tax amount to be paid

Determining the appropriate tax payment amount is still unclear, even after accounting for all permitted deductions. Tax slabs come into play in this situation.

Income tax slabs are different income categories and the associated tax rates. It helps to charge people according to their income. Your ultimate income determines which tax bracket you are in. And you must pay taxes in accordance with that bracket.

The different tax slabs in India are as follows: 

Rs 3.00 lakh – Rs 5.00 lakh

5% 

Rs 5.00 lakh – Rs 7.5 lakh

10%

Rs 7.50 lakh – Rs 10.00 lakh

15%

Rs 10.00 lakh – Rs 12.50 lakh

20%

Now that you are well versed in income tax and the various terms related to it, start your Income Tax Return filing journey today! Visit Piramal Finance now!