Tax is a type of federal revenue collected by the Government from individuals and companies. Tax can be a direct tax or an indirect tax. Direct tax is charged on the income of an individual and is also called income tax. Indirect tax, on the other hand, is charged on goods and services, like GST.

 

 

What is Income tax?

Income tax is a direct tax levied by the Government on your earnings. Whatever be your source of earnings, if you earn an income in a financial year, you are liable to pay tax on the same. If you have multiple sources of income, these sources are aggregated together to give you the total income on which you have to pay tax.

 

What are 5 Heads of income?

For the purpose of income tax calculation, there are five heads of income under which your income can be classified. These heads are as follows –

Heads of income Meaning
Income from salary Income that you earn as salary from being employed
Income from business or profession Income earned from your business or from profession
Income from house property Rental income or income earned when selling a house
Income from capital gains Income earned when a capital asset is transferred
Income from other sources Income which does not fall in any of the above-mentioned heads

 

Amount of tax payable

The amount of tax payable depends on your total income earned in a financial year. The Government has specified an income tax slab and your tax liability is calculated as per the tax slab. The tax slab for individuals below 60 years of age is as follows –

Income level Tax rate
Up to Rs.250,000 Nil
Rs.250,001 to Rs.500,000 5%
Rs.500,001 to Rs.10,00,000 20%
Rs.10,00,001 and above 30%

 

A new tax slab has also been proposed from the financial year 2020. This slab is optional, has lower tax rates but disallows deductions and exemptions. The new tax slab is as follows –

Income level Tax rate
Up to Rs.250,000 Nil
Rs.250,001 to Rs.500,000 5%
Rs.500,001 to Rs.750,000 10%
Rs.750,001 to Rs.10,00,000 15%
Rs.10,00,001 to Rs.12,50,000 20%
Rs.12,50,001 to Rs.15,00,000 25%
Rs.15,00,001 and above 30%

 

Here are 12 salary components on which employee can save their taxes. Read the blog to know more.

 

Income tax deductions

To reduce the tax liability of taxpayers, the Income Tax Act, 1961 has allowed a range of deductions which can be claimed from the taxable income. These deductions help in bringing down the tax liability and saving tax.

Income tax deductions are contained in Chapter VI A of the Income Tax Act, 1961 from Sections 80C to 80U. You can utilize any of these sections if you are eligible for the deductions and save taxes.

 

Tax saving investments

Investments which help in reducing your tax liability are called tax-saving investments. Investment into these avenues help you claim deductions from your taxable income and lower your tax liability. Some of the common and popular tax-saving investments include the following –

These tax saving investments are available under Section 80C of the Income Tax Act, 1961. Moreover, if you invest in health insurance, you can claim a deduction of up to Rs.1 lakh under Section 80D. The NPS scheme also helps you save additional tax of Rs.50, 000 under Section 80CCD (1B).

tax saving investment

Read a complete guide on financial planning and plan your money and taxes wisely.

How to file income tax returns online?

Nowadays, tax filing has been made online so that you can easily file your taxes. To file your returns online, the process is as follows –

  • Visit the income tax department’s website https://www.incometaxindiaefiling.gov.in/home and register yourself as a taxpayer
  • After registration, log into your account and choose the correct ITR
  • Download and fill up the ITR with the details of your income, applicable deductions and exemptions
  • Submit the filled ITR online and verify it and your income tax filing would be done

 

Important things to consider while filing income tax

While filing your income tax return is an easy process, here are some important things which you should consider –

  • TDS

N If TDS is deducted from your income, the same would reflect on the income tax website and you would also get a TDS certificate. Thus, when you pay your tax, deduct the TDS already paid and pay the remaining amount of tax.

 

  • Tax refund

If the TDS paid on your behalf is higher than your total tax liability, you are eligible for an income tax refund. Income tax refund is the refund of excess tax paid by you. It is refunded by the income tax department after you file your taxes. You just have to claim a refund when filing your ITR and the refund is credited within 3-4 working days directly in your bank account.

 

  • Form 16

Form 16 is issued by the employer to its employees. It contains the details of TDS deducted from the salary and deposited with the Government on behalf of the employee. The form is issued in two parts, A and B and it contains the details of the employee, employer, salary paid and the TDS deducted thereon. Form 16 is needed at the time of filing your ITR

 

  • Form 26AS

While Form 16 contains the TDS details of salary, Form 26AS is a consolidated statement which contains the details of TDS deducted from all sources of income. Thus, you can use Form 26AS to find out and match the total tax deducted from your income in a financial year.

Paying the correct amount of tax and filing your returns timely is your federal duty which you should not avoid. So, learn the basics of tax filing and the ways in which you can save tax. For a more informative guide to taxation you can refer to this course. It contains the in-depth understanding of tax and how to reduce it and would help you to calculate the correct tax liability.

 

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