Basics of the Income Tax Act in India that every Indian citizen should Know?
Are you just pass out from the college and searching for a job? Or you already have a job and going to file your first income tax returns? If the essence of income tax confuse you? WE are here to guide and help you. Our main aim is to explain and simplify Income Taxes for you and make you understand all about the financial components. Generally, anybody lives in India with an income is liable to Pay Income Tax in India to the government as per the norms. In this article, you can understand the basics of Income Tax India that every Indian citizen should be aware of.
Tax is the mandatory financial charge imposed by the government on the individual’s income, commodity, activities, services, business deals or transaction. The word ‘tax’ originated from the Latin language word ‘Taxo’. In a simple term, Taxes are the basic source of income or revenue for the government, that is used for the welfare and development of the public of the country by passing and practicing various government policies, provisions and practices. Our team are very much interested to explain the specified law on the process of filing ITR. The main elements of the Income tax Law are Income Tax Act 1961, Income Tax Rules 1962, Annual Finance Act, circulars & notifications and case laws.
History of Income-tax in India:
- In 1857, Sir James Wilson to tally the loss induced on account of ‘military mutiny’ brought in the concept of Income Tax in India for the first time in the year 1860.
- A separate Income Tax Act in India was passed in the year 1886 and this act was in power for a long time, considering the several amendments now and then.
- A new Income Tax Act was passed in the year 1918 but over again, it was replaced by another new Income Tax act of 1992.
- The Act which passed in the 1922 became very complex due to several amendments.
- However, the act remains followed till the assessment year 1961-62.
- Then, the Government of India in the year 1956, referred to the Law Commission and simplified the tax law and also to forbid the evasion of Tax.
- In September 1958, the Law Commission filed its report in consultation with the Ministry of Law.
- At present, the income tax law is regulated and governed by the Act of 1961 and it is commonly known as the Income Tax Act, 1961 and from 1st April 1962 came into practice. This Income Tax in India employs to the whole country, including the Jammu & Kashmir state.
The law of Income Tax in India regulated and governed by the Income Tax Act of 1961 and the breaks are being conformed by the Income Tax Rules, Circulars, Notifications and judicial dictum including rulings and opinions by the Tribunal.
Basics of Income Tax:
‘Financial year’ or ‘Previous year’
‘Financial year’ or ‘Previous year’ or the fiscal year or a tax year is generally a period of 12 months which begins from 1st April and ends on the 31st March of the following year. Whenever you start your job, your fiscal year or tax year ends on 31st March and a new tax year starts from 1st April.
The main elements of the Income tax Law are Income Tax Act 1961, Income Tax Rules 1962, Annual Finance Act, circulars & notifications and case laws. Income Tax Law in India mainly comprises of Income Tax Act 1961, Income Tax Rules 1962, Annual Finance Act, Judicial, and Circulars & Clarification.
Taxes are mainly of two types,direct taxes and indirect form of taxes. Tax levied directly on the income earned is called as direct tax,for example Income tax is a direct tax. The tax calculation is based on the income slab rates applicable during that financial year.
Assessment year is the tax year for the previous year. It is a term you’ll usually hear while filing your tax or tax filing. It is the fiscal year after the previous year in which you will evaluate and file the return for the previous year. For instance, if a person starts a job on 1 January 2018, and his tax year ends on 31 March 2018. 2017-18 is your previous year and your Assessment year is 2018-19 and the last day to submit your income tax return is 31 August 2018.
Understanding your Salary:
When a person starts a new job – he has to discuss to the HR department about his Salary details/ Pay Slip / Tax Statement which will give a clear idea about the components of his salary and the tax which will be deducted from the salary based on those components.
Any Indian citizen aged below 60 years is liable to pay income tax, if their income exceeds Rs 2.5 lakhs. If the individual is above 60 years of age and earns more than Rs 2.5 lakhs, he/she will have to pay taxes to the Government of India.
Income on which you pay Tax:
Apart from the salary you obtain, you may have few other sources of income, thus Total Income is the total sum of all leads of income below. You cannot set off the losses against future gains if the income tax return is not filed on or before the due date.
Sources of Income:
|Income from Salary||Salary, Allowances, Leave payment basically all the cash you obtain while providing your job depending on your employment agreement|
|Income from Profession or Business||Income/loss that received as a result of running a business or profession|
|Income obtained House Property||Income obtained from house or building, owned and self-occupied or may be rented|
|Income obtained Other Sources||This is the residual head that includes your income which obtained from savings fixed deposits, bank accounts, gifts received or pension.|
|Income obtained from Capital Gain||Income received from gain or loss while selling a capital property or asset|
Deductions reduce the Gross Income of the person. this is the amount that the department of income Tax allows to reduce the monthly Income, bringing down the tax liability.
TDS is the abbreviation of Tax Deducted at Source which means that the tax is deducted by the payer and this tax is completely based on the rules and regulations prescribed under the income tax department.
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