Income tax in India may be a tax paid by individuals or entities counting on the extent of earnings or gains during a fiscal year . The earnings could also be both actual and notional. the govt of India decides the speed of tax also as tax slabs on which individuals are taxed. Those under higher income slabs are taxed at higher rates. The taxable income slabs are changed from time to time, keeping in mind the worth levels. Sometimes, the govt also provides tax rebates, which benefit people within the lower-income group. to gather long-term funds, the govt also provides tax incentives. the quantity invested in tax-saving schemes is deducted from gross income, which reduces the quantity of taxable income and benefits the taxpayer.
In case the particular tax payable is a smaller amount than either the quantity of advance tax paid or the quantity of TDS for the corresponding year, the assessee may claim the surplus tax back by filing the acceptable ITR Form. Once the ITR is verified, the tax refund is processed if the tax Department finds that the claim is genuine.
What sort of tax is an income tax? What sort of income is taxable in India?
Income tax in India may be a tax on the income or earnings during a fiscal year . Below are some sorts of incomes and their taxation rules in India:
• Income from salary/pension: This includes basic salary, taxable allowances, perquisites, and profit in lieu of salary, also as pension received by the one that himself/herself has retired from the service. Incomes from salary and pension are included within the computation of taxable income.
• Income from business/profession: This includes actual and presumptive incomes from business and professions that individuals neutralize their personal capacity and is added to taxable income after adjustment of the deductions allowed.
• Income from house property: An tax assessee can own one or more house properties. These house properties are often self-occupied or rented out or maybe vacant. This head describes the principles concerning such ownership. the principles under this head describe how rent from one or more house properties is to be treated for the aim of calculation of taxable income. It also describes how interest on home equity credit is to be accounted for within the case of self-occupied, rented out and vacant properties. An tax assessee can claim certain deductions like municipal taxes and a typical deduction for house maintenance in certain cases. the ultimate net or loss under this head is then added to or deducted from the income from the opposite heads.
• Income from other sources: This includes incomes like interest from a bank account , fixed deposits (FDs), family pension etc, which are included within the taxable income.
• Income from Lottery, Betting, Race Horse etc: Such incomes are included within the total income, but excluded from taxable income as different tax rates are applicable on these sorts of income.
• Capital Gain: Capital gains arise at the time of selling capital assets like gold, house properties, stocks, securities, open-end fund units etc. counting on the kinds of capital assets and therefore the period of holding, gains on the sale of such assets are categorised as short-term and long-term capital gains. Although capital gains are a part of tax , they’re not added to taxable income, because except short-term capital gains on the sale of debt funds, other gains are taxed at different rates.
Who is eligible for income tax?
As tax is predicated on one’s ability to pay it, different tax rates are applied to different income slabs, which is revised by the govt from time to time. Currently, there’s zero per cent tax on taxable income up to Rs 2,50,000, 5 per cent tax is levied on taxable income between Rs 2.5 lakh and Rs 5 lakh, 20 per cent tax is levied on taxable income between Rs 5 lakh to Rs 10 lakh. For taxable income above Rs 10 lakh, 30 per cent is that the applicable rate.
On the tax payable, 4 per cent Health and Education cess is additionally charged. Moreover, 10 per cent surcharge is levied on income between Rs 50 lakh and Rs 1 crore and 15 per cent surcharge is levied on income over Rs 1 crore. Tax rebate (under section 87A) up to Rs 12,500 is provided to the assessees having total income after Deductions up to Rs 5 lakh. However, usual tax computation are going to be applied just in case the taxable income exceeds Rs 5 lakh limit.
How is tax calculated in India?
Income tax in India is calculated on the idea of tax rates determined by the govt for an Assessment Year (AY). For example: For AY 2019-20 (Financial Year 2018-19), the tax payable could also be calculated within the following way:
Once the gross total income is calculated by adding all the above sources, whichever applicable, deductions on account of tax-saving investments, allowed expenses, donations etc are adjusted. the most sections under which tax deductions in India are allowed include up to Rs 1.5 lakh under sections 80C, 80CCD, 80CCD(1), 80CCD(2) and 80CCG combined; up to Rs 50,000 u/s 80CCD(1B); up to Rs 1 lakh u/s 80D and 80E, 80EE, 80G, 80TTA. After the whole eligible deduction amount is reduced from the gross income, the figure of taxable income is received . The tax amount that’s payable is computed on the idea of taxable income.
Income Tax Return forms in India
Filing of tax Return (ITR) is compulsory for earning individuals or entities, counting on their earning capacity. The tax Return must be filed on prescribed ITR Forms.
ITR filing mistakes which may cost taxpayers dearly
It is that point of the year when taxpayers are required to file their tax returns (ITRs) for the relevant financial or assessment year. However, during a rush to file their ITRs on time, many of us make some ITR filing mistakes which sometimes cost them dearly — although such mistakes aren’t unusual because besides the ITR filing being an annual activity, tax rules also keep changing from time to time.
Thankfully, to mitigate the woes of taxpayers in times of the Covid-19 pandemic, the tax Department has in recent months extended the ITR filing due dates repeatedly . Still, some tax filing mistakes are sure to occur due to various reasons. to assist taxpayers avoid the common tax filing mistakes, we are taking a glance at some such mistakes which may cost them dearly:
1. Not filing ITR if tax already paid
Many taxpayers presume that, if tax has already been paid, the return of income isn’t required to be furnished. that ought to , however, not been done. If the assessee may be a resident of India, regardless of his liabilities , ITR is required to be furnished if his total income (before claiming certain exemptions and deductions) exceeds basic exemption limit. Further, in certain circumstances laid out in Seventh Proviso to Section 139(1), the filing of return is mandatory albeit total income doesn’t exceed basic exemption limit. for instance , if expenditure on foreign travel exceeds Rs 2 lakh or payment of electricity bill exceeds Rs 1 lakh, among others.
2. Not starting tax filing preparation in time
Taxpayers should start the tax filing preparation in time. that’s because not starting the tax filing preparation in time creates an environment of tension and increases the likelihood of creating mistakes, missing deductions and exemptions and filing the return late. this is able to end in a possible interest levy and a late filing fee.
3. Using incorrect ITR forms
Every year the I-T department keeps notifying various income tax return forms for the convenience of taxpayers, depending upon their income, types and residential status. However, it’s usually been seen that a lot of taxpayers choose incorrect ITR forms while filing their return of income.
For instance, a resident individual whose total income is a smaller amount than Rs 50 lakh and has one house property and no income from capital gains can use the ITR 1, which has become an easier form now. However, many of us incorrectly file ITR 2 which is complex and requires much more details. Thus,if someone chooses the incorrect ITR form, it’s likely that the entire information in ITR wouldn’t be reported and therefore the tax department can issue a notice for underreporting the income.
4. Failure to see Form 26AS
Form 26AS incorporates various information like information concerning Specified Financial Transactions (SFT).
Therefore examination of the shape 26AS before filing the income tax return is important . This provides a simple checklist for the tax payer to verify his income also as his expenses. Further, if the small print reported in 26AS are incorrect, the tax payer would have the time to request the deductor for an evidence and correction.
5. Paying taxes for wrong assessment year
Another common mistake that the majority people make is paying taxes for the incorrect assessment year. this may end in taxes still payable for the present year while an excess payment are going to be made for an additional year. Hence, one should take care in selecting the proper year when paying of taxes.
6. Not reporting the foreign assets correctly
For the past few years residents are required to report foreign assets within the income tax return . These might be bank accounts, foreign stocks, including ESOPs or overseas trusts. it’s necessary to report this carefully with their values. most of the people fail to report the RSU and ESOP stock they hold on account of oversight, which may cause challenges if the return is picked for audit.
7. Not claiming advantage of donations, tax-saving investments
Missing to say advantage of donations, tax-saving investments is sort of common. During the year, several tax payers do invest in several investments or make donations that they fail to form a note of. a simple way of tracking this is able to be to analyse the bank statements intimately where these records would be available.
8. Not reporting petty incomes in ITR
It would, however, be a costly belief because the tax Department gets regular information from banks and financial institutions about your transactions which are reconciled together
Failure to report exempt income is one among the errors that folks make. “While there’s no tax implication of not reporting the exempt income, it does help to determine the disparity between earnings and taxes and avoid the need to supply lengthy explanations just in case of a tax query.
Similarly, income or income generating assets transferred to the spouse or minor kids is usually clubbed as income within the hands of the transferor. many of us miss report this income which generally gets noticed just in case of audits, and if that happens, interest and penalty may follow.
Why tax is vital for the govt of India?
According to estimates, about 71 per cent of the government’s total revenues are collected through taxes and duties, while nine per cent come from non-tax revenues, and therefore the remainder of about 20 per cent are covered through borrowings and other liabilities. The revenue collected by the govt is employed in various ways, like paying states’ share of taxes and duties, interest payments, expenditure on central sector schemes and centrally sponsored schemes, pension to retired government employees, defence expenditures, subsidies, expenses through finance commission, transfers, etc.
Faceless tax Appeal
To eliminate physical interface between tax officials and taxpayers, the tax department has made its appeals systems anonymous with immediate effect to maneuver to the faceless regime. it’s expected that the taxpayers under the faceless system would face lower incidents of corruption because the new system is predicted to form the system more transparent. While, consistent with The Central Board of Direct Taxes (CBDT), about 88 per cent of the present pending appeals at the commissioner (appeals) level would now be handled under the faceless system, certain cases associated with serious frauds, major evasion , sensitive and search matters, cases associated with international tax and Black Money Act would be exempt.
Presided over by a commissioner-rank official of the tax Department, the commissioner (appeals) is that the lowest level where an assessee begin challenging an income-tax assessment order. If unsatisfied, the choice of the commissioner (appeals) can subsequently be challenged within the income-tax tribunals, high courts and therefore the Supreme Court by the aggrieved party. With about 4.6 lakh appeals pending, consistent with CBDT, 85 per cent of this strength of commissioners (appeals) shall be utilised for removing the cases under the faceless appeal mechanism.
The process to allocate the cases with none human intervention with the support of knowledge analytics and AI not only bring transparency within the system and reduce the likelihood of corruption but also bring uniformity in determining the appeals. The step to permit to review the draft order by another appeal unit just in case of demand including tax, interest, and penalty exceeding the edge limit or otherwise, by National Faceless Appeal Centre in accordance with the danger management strategy won’t only make sure that all the contentions of the taxpayers including papers on the record are duly considered by the appeal unit but also make sure that no mistake apparent on record is formed while passing the order, thereby not only reduce the further litigation but also reduce the rectification application. The step to incorporate consultants – including tax expert, jurist , industry expert to be the a part of the Appeal unit – will definitely assist the appeal unit in appreciating the complex business structure, tax strategies and thereby reducing further litigation.