INCOME TAX- ALL YOU NEED TO KNOW

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Different kinds of taxes In India :

In India, your taxes can be categorized into two sectors: Direct tax and indirect tax.

Direct tax is a tax you pay on your income directly to the Government.

Indirect tax is a tax that somebody else collects on your behalf and pays to the Government, for example, the tax you pay on restaurants, theatres and e-commerce websites. These institutions collect taxes from you on goods you purchase from them or a service you avail for them. In the end, these taxes are passed to the Government,

You can classify Direct Taxes into two broad sectors :

  • Income Tax – This is the type of tax that an individual or a Hindu Undivided Family or any taxpayer other than companies pay on the income they receive. The Indian Government has its laws which prescribe the exact rate at which their  income should be taxed
  • Corporate Tax – This is the type of tax that companies pay on the profits they make from their businesses. Here again, a specific rate of tax for corporates has been prescribed by the income tax laws of India.

Indirect taxes have many forms such as service tax on 

  • Restaurant bills and movie tickets and food.
  • Newly introduced Goods and services tax, which is a unified tax that has replaced all the indirect taxes that business owners usually paid.
  • The value-added tax or VAT on goods such as clothes and electronics.

Everyone who earns or gets an income in India is subject to income tax. It is applicable to both a resident or a non-resident of India.

For simpler classification, the Income Tax Department breaks down income into five heads:

Head of IncomeNature of Income covered
Income from Salary1. Income from salary and pension are covered under here
Income from Other Sources2. Income from savings bank account interest, fixed deposits,
Income from House Property3. This is rental income mostly
Income from Capital Gains4. Income from the sale of a capital asset such as mutual funds, shares and house properties
Income from Business and Profession5. This applies when you are self-employed, run a business, work as a contractor or freelance. The list includes tuition teachers, chartered accountants, Life insurance agents, lawyers and doctors with their own practice.

Taxpayers and Income Tax Slabs

Taxpayers in India, the classification regarding Income tax is such

  • Association of Persons(AOP)
  • Body of Individuals (BOI) Individuals,
  • Hindu Undivided Family (HUF)
  • Firms
  • Companies

According to Indian income tax laws, each taxpayer is taxed differently. In India, you have four tax brackets, each with an increased tax rate.

  • The persons who earn an income of up to 2.5 lakhs
  • Those who earn an income between 2.5 lakhs and 5 lakhs
  • Also, those who earn an income between 5 lakhs and 10 lakhs
  • Persons who earn an income of or above Rs 10 lakhs
THE RANGE OF INCOMETHE RATE AT WHICH YOU ARE TAXED THE TAX YOU NEED TO PAY
Up to Rs.2,50,0000No tax
Between Rs 2.5 lakhs and Rs 5 lakhs5%5% of your taxable income
Between Rs 5 lakhs and Rs 10 lakhs20%Rs 12,500+ 20% of income above Rs 5 lakhs
Above 10 lakhs30%Rs 1,12,500+ 30% of income above Rs 10 lakhs

What are the exceptions to the Tax Slab?

You should bear it on your mind that income cannot always be taxed on the basis of the Tslab. Capital gains income is an exception to this rule. You are taxed on Capital gains depending on the assets you own and the amount of time you have had it. It is this holding period that would determine if an asset is a long term or short term. The holding period will determine the nature of an asset. You need to keep in mind it is different for different assets

Here is the table with all the information about holding periods, the nature of assets and the rate of tax for each of them:

Classification of the capital assetHolding periodThe rate of tax you need to pay
House PropertyHolding more than 24 months – Long Term Holding less than 24 months – Short Term20% Depends on the slab rate
Debt mutual fundsHolding more than 36 months – Long Term Holding less than 36 months – Short Term20% Depends on the slab rate
Equity mutual fundsHolding more than 12 months – Long Term Holding less than 12 months – Short TermExempt (until 31 March 2018) Gains > Rs 1 lakh taxable @ 10% 15%
Shares (STT paid)Holding more than 12 months – Long Term Holding less than 12 months – Short TermExempt (until 31 March 2018)Gains > Rs 1 lakh taxable @ 10% 15%
Shares (STT unpaid)Holding more than 12 months – Long Term Holding less than 12 months – Short Term20% As per Slab Rates
FMPsHolding more than 36 months – Long Term Holding less than 36 months – Short Term20% Depends on the slab rate

Income Tax regarding residents and non-residents:

In India, the amount and the rate of income tax in India depend entirely on the residential status of a taxpayer. If Individuals qualify as a resident in India, they must pay tax on their global income in India. That is, income earned in India and abroad. On the other hand, those Indians who qualify as non-residents need to pay taxes only on their Indian income. For each financial year for which income and taxes are computed, the residential status is determined separately. 

What is Income?

The Income-tax Act defines income very widely. In simple words, income comprises pension, salary, rental income, any profit made out of the sale of any specified asset, profits out of any business or profession, royalty income, interest income, dividends.

The law divides income under 5 major heads  :

  • Salary Income
  • House Property income
  • Profits and Gains from Business or Profession
  • Capital Gains
  • Income from other Sources

Income Tax Return

An Income Tax Return is a process by which a taxpayer shows details of his income and puts out a claim of deductions and exemptions and taxes applicable to the taxed income.

Income Tax Return E Filing

Online filing of income tax return has been made mandatory for all classes of taxpayers with a  few notable exceptions :

  • If the Taxpayer is aged 80 and above they do not need not filed the return online
  • If the Taxpayer is having an income less than Rs 5 lakhs and does not claim a refund, they do not need not file the return online

The rest of the taxpayers need to do online filing. It is mandatory.

Here is the online LINK

PENALTY FOR NOT FILING INCOME TAX RETURN ON TIME

As per the changed rules notified under section 234F of the Income Tax Act which came into effect from 1 April 2017, filing your Income Tax Return post the deadline will result in these here are some happenings

  • You will be denied carry forward of losses (except house property loss) to future years
  • There will be a delay when it comes to the processing of refund claims if any
  • You have difficulty getting home loans
  • There is a levy of the late filing fee up to Rs 10,000 under Section 234F
  • There is a levy of interest under 234A if there are taxes due

What is the Due Date for Tax Filing?

For the Financial year 2018-2019, the due date for filing Income Tax Returns for FY 2018-2019 for Individuals has been extended to 31st August 2019.

Category of TaxpayerDue Date for Tax Filing – FY 2018-19
Individual31st August 2019
  Body of Individuals (BOI)  31st August 2019
   Hindu Undivided Family (HUF)31st August 2019
   Association of Persons (AOP)31st August 2019
  Businesses (Requiring Audit)30th September 2019
   Businesses (Requiring TP Report)30th November 2019

(This is the income tax return for the financial year 2018-19. Applicable for income earned from 1 April 2018 to 31 March 2019).

Conclusion:

Hope all this income tax information was helpful to you. Don’t forget to file you Income Tax soon!

Read other Government schemes in detail 

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