Basics of Income Tax
“Income Tax” – a word which is dreadful like no other thing and in Indian context, even makes a fearless man scary!!
Let us see the basics of income tax.
Income tax is a tax on income earned by person. Every person whose income for a particular year, exceeds the maximum amount not chargeable to tax, has to pay income tax. The levy is a central levy and it is governed and regulated by Income Tax Act, 1961 (“the Act”) in India. Income tax is chargeable to every person and person includes Individual, Hindu Undivided Family (HUF), Company, Firm, Association of Persons (AOP) or Body of individuals (BOI), Local authority and Artificial Juridical Person (even a Tirupathi Deity is taxable). The year in which income is earned is considered as previous year. The year in which the income tax is charged, for the income earned in the previous year, is called assessment year. The assessment year generally starts from 1st of April and ends at 31st of March.
Broadly, income gets classified under 5 major heads viz. Income from Salary, Income from House Property, Profits and Gains of Business or Profession, Income from Capital Gains and Income from Other Sources. Certain incomes like agricultural income, dividend incomes, etc. are exempt from taxation. The provisions of the Act also allows for certain deductions from the total income in the form of life insurance premiums, mediclaims, etc.
Further, there is a concept of “Pay Tax As You Earn”, in the form of Tax Deducted at Source (“TDS”), Tax Collected at Source (“TCS”) and Advance Tax (which most of us actually dislike), which regulates the payment of tax as and when the income is earned by the person.
The person, who has earned income, has to file the return of income. After the return of income is filed, it undergoes the assessment from the Income Tax Authorities. Once the assessment is complete, the return of income is processed and approved by the Income Tax Department. The Act also provides for interest, penalties and prosecutions (severe than anything), as the case may be, in case of defaults done by the person in relation to provisions of the Act.
Each and every year, the rates of income tax would be amended (mentioned) by the Finance Act which will be passed by both the houses of the Parliament. The individuals and HUFs are generally taxed at the slab rates whereas the Firms and Companies are charged at flat rate of 30%.