In India, if you earn money over a particular limit (which is currently Rs. 2,50,000/- for citizens upto the age of 60 years). In simple words, if a person earns income of upto Rs. 2,50,000 during a financial year, it does not have to pay any Income Tax. For the year 2017-18, the Income Tax collections have been over Rs. 10 lac crore, showing a growth of over 18% and exceeding target, thanks to demonetisation.
Above this limit, you have to pay tax to the Central Government under various tax slabs (currently there are 3 slabs: 5%, 20% and 30%. Of course one has to pay 4% Cess over the Income Tax, thus, levied). If your income crosses Rs. 50 lacs, another tax in the form of Surcharge is also levied.
As explained, this Tax on your Income is known as Income Tax (IT). And this activity is handled by Income Tax Department under the Income Tax Act, 1961. IT Department is governed by Central Board of Direct Taxes (CBDT). CBDT falls under the Central Government’s Ministry of Finance. IT is a Direct Tax and the single largest source of revenue for the Central Government.
The last date of filing Income Tax Return by individuals is 31st July of every year. There is late filing fee of Rs. 5,000 after this date but only upto 31/12. After this date it is Rs. 10,000.
The source of your income could be any of the below:
Salary
Profit from Business
Dividend / Interest earning from Investments
Remittances in your favour from domestic / foreign sources
The IT year starts at the 1st April and closes on the 31st March. This 12 month period is also known as Tax Year. You provide some predetermined information to the IT department in a specified format. This activity is known as Tax Filing.
Example:
You earned income during the year starting 1/4/2017 which ended on 31/03/2018. The year in short is referred to as 2017-18. This is known as Tax Year.
Naturally you will be doing your Tax Filing after 31/03/18. You will do this in the year starting 01/04/2018 and prior to 31/03/2019. This year will be known as your Assessment Year. IT Department will assess your earned income of 2017-18 during the year 2018-19. And so on and so forth.
For salaried employees, it is mandatory on part of the employer to deduct Income Tax from the monthly salary itself if their salary is eligible for Income Tax deduction. This is known as Tax Deducted at Source or TDS. On your FD, too, bank deducts TDS from the interest earned.
Every salaried employee whose income is over Rs. 2,50,000/- is provided by its employer Form 16 at the end of the tax year which is certificate of Tax Deducted at Source (TDS). Form 16 has 2 parts: A and B. Part A provides details about the employee including PAN number and the employer and Part B speaks about the deductions. Form 16 A is provided for income other than salary, such as TDS on FDs.
Form 26AS which is available on the IT Department’s website (www.incometaxindiaefiling.gov.in) shows how much tax has already been deducted from your income. All the information of Form 16 and Form 16A finds place there. One can access this site, this information using one’s PAN number.
Permanent Account Number (PAN) is 10 character unique Alpha Numeric Code which acts as identification for individuals as well as businesses. PAN is issued by IT Department and is compulsory for every tax paying individual or business. However, it is not necessary that one has to be eligible for tax payment to obtain PAN. It is issued in the form of a plastic card (of the size of a Debit Card).
PAN can be applied for On Line by filling in Form 49A. It is almost mandatory to quote PAN while opening a bank account these days. It is illegal to apply for more than one PAN. Something like 7 cr returns have been filed for the tax year 2017-18. PAN issued are around 30 cr.
Sum of all the income which you earn is known as Gross Income. It may include your salary, rental income if any, interest on your deposits and dividend on your investments etc. When you deduct the permissible amounts from your Gross Income, you arrive at the Taxable Income.
One deduction which is known as Standard Deduction and amounts to Rs. 40,000 is allowed to all salaried employees. This is in lieu of all travel and medical expenses which were allowed earlier as standard deductions.
Deductions under Section 80C are most popular for salaried employees.
The Five Categories of Income under the IT Act are as follows:
- Income from Salary (income from a regular service and the payment is generally monthly), Wages (the remuneration paid for a contractual job which is paid after completion of that job, generally on daily basis), Annuity (lump sum payment made annually), Gratuity (if an employee remains in a job for over five years, he is entitled for gratuity. It is paid after retirement or on leaving the job), Pension, Fees, Commission, Profits, Leave Encashment, employee and employer PF contributions.
- Rental Income from the properties rented out.
- Income from Commercial Activity such as Business or Profession which includes salary, bonus, interest as remuneration out of business.
- Income from Capital Gains (Long Term or Short Term Capital Gains) arising out of sale of any capital asset such as land, house, shop, factory, shares.
- Income from other sources such as Interest on Deposits, Gifts Received, Prize Winning etc
