What is Income Tax?
Income tax is a tax the government imposes on individuals’ or businesses’ income. The amount of tax owed is based on the individual’s or business’ income level and is typically calculated as a percentage of that income. The government uses the money collected from income taxes to fund public services and programs.
How Does Income Tax work?
Income tax works by having individuals and businesses calculate their taxable income, which is their total income minus any deductions or credits. The taxable income is then taxed at a rate determined by the government. The tax rate may vary depending on the amount of income, the filing status of the individual, or the type of business.
In most countries, paying income tax starts with the employer deducting tax from the employee’s salary; this is called withholding tax and remitting it to the government on behalf of the employee. Self-employed individuals and businesses also have to calculate their tax liability and make payments to the government.
Income tax returns must be filed annually, typically by a specific date, in which the individual or business reports their income and any deductions or credits they are claiming. The government uses the information reported on the tax return to ensure that the correct amount of tax is paid. If the individual or business owes additional taxes, they must pay them. If they have overpaid, they will receive a refund.
Income tax laws and regulations are complex and often change, so individuals and businesses must stay informed and seek professional advice
How Do Income Tax Slabs Work?
Income tax in India functions according to the slab system, while individual taxpayers are subject to the appropriate amount of tax. Slab alludes to the various tax rates applied to different income brackets.
, the higher you earn, you are liable to pay more tax. The income tax brackets are updated annually during the announcement of the budget. Various types of taxpayers fall under different slabs. Three types of individual taxpayers come under the Income Tax of India:
- Individuals under the age of 60 years include citizens and non-citizens
- Senior citizens between the age of 60 – 80 years – is a resident
- Super senior citizens exceeding the age of 80 years – is a resident
Old Tax Slabs
0 – ₹2.5 lakh – NIL
₹2.5 lakh – ₹5 lakh – 5%
₹5 lakh – ₹7.5 lakh – 10%
₹7.5 lakh – ₹10 lakh – 15%
₹10 lakh – ₹12.5 lakh – 20%
₹12.5 lakh – ₹15 lakh – 25%
₹15 lakh and above – 30%
New Tax Slabs
0 – ₹3 lakh – NIL
₹3 lakh – ₹6 lakh – 5%
₹6 lakh – ₹9 lakh – 10%
₹9 lakh – ₹12 lakh – 15%
₹12 – ₹15 – 20%
₹15 lakh and above – 30%
How is Income Tax Returns Filed Online?
The procedure to file Income Tax Returns online is known as e-filing. The e-filing of an ITR is a quick and straightforward process that an individual can perform conveniently from home or the workplace. One can save money by filing an ITR online as they will not require any other person to do so.
Step 1: Visit the e-filing website https://www.incometax.gov.in/iec/foportal
Step 2: Register or Login to e-file income tax returns online
If you have already registered for the portal, Click the button ‘Login Here’.
If you haven’t created an account yet, Click the button ‘Register Yourself’.
Step 3: Select ‘Taxpayer’ and, fill in your PAN details, and click the button to ‘validate’. Then ‘Continue’ to proceed.
Step 4: Provide details such as your name, address, date of birth, residential status, gender, etc.
Step 5: Provide your registered mobile number and email ID.
Step 6: Once the form-filling process is completed, press ‘Continue’.
Step 7: You need to confirm the details following the 6-digit One Time Password sent to the registered mobile number and Email address.
Step 8: Enter OTP and follow the directions to complete the registration process successfully.
Step 9: When the OTP gets validated, a separate window will open, asking you to confirm the details given by you. If you need to make corrections in the details, you can make corrections by entering the new OTP sent to authenticate the updates.
Step 10: The last step will be setting up a password and saving the login message.
Step 11: Once you click “Register,” you will receive a notification that the registration procedure has been completed successfully.
Details Required When E-Filing Income Tax Returns
The following information is required when filing income tax returns online.
- Aadhaar card details, PAN card number, and current address
- All the bank account details available in that specific financial year
- Evidence of income like current salary details and earnings from investments such as saving bank accounts or FDs etc.
- Section 80 or chapter VI-A is the legal basis for all deductions
- Tax payment information such as advance tax payments and TDS
How can I Calculate Income Tax?
Calculating your income tax can be a complex process, but the basic steps are:
- Determine Taxable Income: This is your total income from all sources, minus any deductions or credits that you are eligible for.
- Tax Rates for Income Level: Tax rates vary depending on your income level and filing status. You can find the tax rates for the current year in the tax laws or on the website of your country’s tax agency.
- Apply Tax Rate to Taxable Income: Multiply your taxable income by the tax rate to find the amount of tax you owe.
- Calculate Additional Taxes: Some countries have additional payroll taxes, sales taxes, or surtaxes that may be added to your income tax.
- Subtract Taxes that were Withheld: If taxes were withheld from your salary or if you made estimated payments, you can subtract them from the total amount of tax you owe.
- File Tax Return: Once you have calculated your tax liability, you must file a tax return with your country’s tax agency.
It’s important to note that the above steps are just a simplified version and the tax calculation process in some countries may be more complex and may involve more steps, it may also depend on the tax laws, regulations, and the type of income. You can use tax software or consult a tax professional to help you with the calculations.
Benefits of Paying Income Tax
Paying income tax has several benefits, including:
- Funding Public Services and Programs: Income tax is the primary source of revenue for most governments, and it is used to fund a wide range of public services and programs, such as education, healthcare, infrastructure, and social welfare.
- Building a Strong Economy: Income tax helps to create a stable and predictable revenue stream for the government, which in turn helps to build a strong and stable economy.
- Promoting Fairness and Redistribution of Wealth: Progressive income tax systems, where tax rates increase as income increases, help to reduce income inequality by redistributing wealth from high-income earners to those with lower incomes.
- Encouraging Civic Responsibility: Paying taxes is a civic responsibility and it encourages citizens to be more engaged and invested in their communities and the broader society.
- Maintaining National Security: Income tax funds government programs and initiatives that help maintain national security and protect citizens from domestic and foreign threats.
- Encouraging Compliance with Laws and Regulations: Income tax laws and regulations are essential for enforcing compliance with other laws and regulations, such as labor laws, environmental laws, and business regulations.
- It is important to note that paying taxes is a legal obligation and an important part of being a responsible citizen. The benefits of paying taxes help to create a better society for everyone.
Personal Benefits of Paying Tax
- Paying income tax can have personal benefits as well, in addition to the broader societal benefits. Here are a few examples:
- Maintaining Good Credit: Failure to pay taxes can lead to penalties and interest charges, negatively impacting your credit score. Paying your taxes on time helps maintain good credit.
- Claiming Refunds: If you have overpaid your taxes, you may be eligible for a refund. Filing your taxes on time can accurately help you claim any refund you are entitled to.
- Eligibility for Government Programs: Some government programs and benefits, such as student loans, grants, and certain types of insurance, are only available to individuals with a history of paying taxes.
- Avoiding Legal Problems: Failure to pay taxes can lead to legal problems, including fines and imprisonment. Paying your taxes on time can help to prevent these problems.
- Peace of Mind: Knowing that you have fulfilled your civic duty and paid your fair share of taxes can bring a sense of satisfaction and peace of mind.
It is important to remember that paying taxes is a legal obligation; not only that, but it also helps to build a strong and stable society and economy. Paying taxes on time accurately helps to ensure that you can take advantage of the personal benefits it offers.
Public Benefits of Paying Tax
Paying income tax has several public benefits as it is a primary source of revenue for most governments, and it is used to fund a wide range of public services and programs such as:
- Education: Income tax funds public schools and universities, providing access to quality education for all children and adults.
- Healthcare: Income tax funds public healthcare systems, providing all citizens access to affordable and quality healthcare.
- Infrastructure: Income tax funds the construction and maintenance of public roads, bridges, and other infrastructure, improving transportation and connectivity for all citizens.
- Social Welfare: Income tax funds programs that assist those in need, such as food assistance, housing, and unemployment benefits.
- National Defence and Security: Income tax funds the military, providing national security and protection for citizens from domestic and foreign threats.
- Environmental Protection: Income tax funds environmental protection programs such as clean air and water initiatives, wildlife conservation, and land management.
- Research and Development: Income tax funds research and development programs such as scientific research and technological innovation.
- Public Services: Income tax funds other public services such as emergency services, police and fire departments, and other public institutions.
Paying income tax is a way to contribute to society and help ensure everyone has access to the services and programs they need to live healthy, safe, and prosperous lives. In addition, paying taxes ensures that the country can function and sustain itself, providing citizens with the infrastructure and services required for a decent standard of living.