Income Tax

Taxation in India is done as per the rules of the Income Tax Act, 1961 which was enacted to manage and govern taxation in India. The rules were established to assist in enforcement and application of the Act’s law.

Who should pay income tax?

ITR has to be filed mandatorily by professionals whose income is above Rs. 2.5 lakh in one financial year. In case of senior citizens, the limit is Rs. 3 lakhs and super senior citizens, the income is Rs. 5 lakhs. The below individuals have to pay tax and file returns.

• Companies
• Local authorities
• Body of individuals
• Corporate firms
• Artificial judicial persons
• Hindu Undivided families

Types of income based on the Income Tax Criteria

The revenue department has categorized the income generated by individuals and corporations in five major categories:

• Property income: Under this type of income, the property is taxable
• Salary income: Pension and income are taxable under this type of income
• Income from other sources: Income from fixed deposits, interest from savings account, lottery winnings are a part of this category
• Business or profession income: This refers to income generated by businesses, self employed professionals, freelancers, contract workers, tuition teachers, lawyers i.e. people who have their own practice
• Capital gain income: This includes income generated from sale of mutual funds, capital gains, real estate, etc.

How is income tax calculated?

Income tax calculation can be done online using an income tax calculator or can be done manually. The amount of tax you pay will depend on the tax slab that you fall. Individuals and Hindu Undivided families can avail tax deductions under 80C through 80U, subtract it from their gross total income and calculate the due income tax that is payable. The total income liability should be adjusted based on the advance tax paid, TDS, etc. The taxpayer can also avail rebate under section 87A and relief under section 89, 90 and 91 to determine the total tax to be paid.

• Every source of income generation should be reported to the Income Tax Department.
• Few are the guidelines that need to be followed to calculate the tax payable:
• All earrings including rental income, capital gains, interest income, profit made from business or profession etc. should be calculated
• Legally exempt income should be removed
• Claim for all appropriate deductions should be made i.e. standard deduction of Rs. 50,000 from salary income, municipal tax from rental income, business related costs from business turnover, etc.
• Claim for all eligible exemptions under category of income should be made i.e. the money renivested in another housing property can be claimed as an exemption from capital gains income, etc.
  Claim from appropriate deductions from your total income such as 80C, 80D, 80TTA, 80TTB, etc.

Income tax rates

For the fiscal year April 1-March 31, individuals having income of more than Rs. 5 lakh have to pay income tax to the government. The taxation amount is dependent on the income tax bracket. The maximum income tax rate is set at 30% with a surcharge and education cess applied.