Basic Concepts of Income Tax

You are not alone if the words “income tax” make you nervous. Taxation is similar to arithmetic in school; most people despise it because they never attempt to comprehend it. This post seeks to rectify that by laying out everything you need to know about taxation. Let’s start with the fundamentals.

Also Read: Income Tax Return Filing

What is the definition of income tax?

Individuals, the Body of Individuals (BOI), the Association of Persons (AOP), the Hindu Undivided Family (HUF), and enterprises must pay this type of tax to the national government. The government collects a tax on your earnings over the course of a fiscal year and invests the proceeds in the country’s development. Your income and tax brackets influence the amount of tax you pay.

What are the different types of income tax slabs?

The income tax slab is a grouping of people’s earnings by the government. The amount of tax you owe is determined by your earnings over the course of a year. The old regime and the new regime are the two types of tax slabs currently in use.

You can use the government’s tax deductions and exemptions before paying income taxes. There are numerous tax advantages that might drastically reduce your taxable income.

Exemptions and deductions from income taxes

Now it’s time to deliver some good news. You’re probably aware that the government grants tax exemptions and deductions. These tax benefits reduce your taxable income, resulting in fewer taxes. However, these are only available if you choose to pay taxes according to India’s old income tax bands.

  1. Exemptions: 

Salaried people are eligible for exemptions. If you look attentively at the wage slip, you may see the basic pay, travel allowance, House Rent Allowance (HRA), and other components. Some of these earnings are not subject to taxation. If you live in a rented residence, for example, you will receive HRA from your job. Despite the fact that it is a source of income, it is not subject to taxation.

  1. Deductions:

Deductions are calculated depending on your total annual income. It contains all of your earnings and investments. To begin, salaried workers are entitled to a basic deduction of $50,000 from their pay. In addition, the Income Tax Act of 1961 contains certain clauses under which the government allows for additional deductions. The following are some examples:

Section 80D: It allows for a yearly tax deduction of up to $25,000 for health insurance premiums paid. You will receive an additional deduction of up to 25,000 if you purchase Mediclaim for your parents.

Section 80E: It offers a tax deduction for interest paid on an educational loan repayment.

Section 80G: It allows for a tax deduction for donations made to certain charitable organizations and humanitarian programmes.

Section 80EE: It allows for a yearly tax deduction of up to $50,000 on interest paid on a home loan repayment.

What is an ITR form?

It’s a form that you’ll need to fill out in order to file your taxes. To file income tax, you must supply information about your earnings and any applicable taxes.

Things to keep in mind when filling out the ITR form

In India, you must choose from seven distinct sorts of ITR forms for various types of taxes, based on your source of income, amount of income, and other variables.

ITR 1: Individuals having a salary, pension, one-house property, or other sources of income of up to 50 lakhs.

ITR 2: Individuals or HUFs with income in excess of Rs. 50 lakhs from ITR-1 sources, plus capital gains, multiple house properties, and foreign income.

ITR 3: ITR-2 + presumed income exceeding $50,000 from a business, partnership, or other source.

ITR 4: Individuals, HUFs, and partnership firms (excluding Limited Liability Partnerships) with presumed income from sources are required to file Form ITR-1 if their income is less than $50,000.

ITR 5: Firms, AOPs, LLPs, and BOIs, as well as artificial juridical persons (AJPs), insolvent estates, investment funds, business trusts, and deceased estates, are all covered.

ITR 6: Companies that aren’t taking advantage of Section 11 deductions.

ITR 7: Persons and businesses required to file returns under Sections 139(4A), 139(4B), 139(4C), 139(4D), 139(4E), or 139(4F) of the Internal Revenue Code (4F).

E-filing of Income Tax Returns

You can complete the process online by using income tax e-filing. You can register using your Permanent Account Number at the Income Tax Portal (PAN). The next step is to select the appropriate ITR form and complete the needed sections. After that, you can submit it and file your tax return online.

Suggested Read: Income tax Advisory Services

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