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Tax University - FAQs

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Tax is a responsibility. It’s a mandatory payment made by the people to the government. The taxes paid by us are used by the government to pay for various services such as street lighting, roads, police, etc., that are offered to us. The amount is not only used for infrastructural development but is also used for paying state and central government bodies. Income tax is the amount paid by an individual on the total income earned in India. As per the Income Tax Act, anyone who earns an income beyond a certain threshold is liable to pay income tax to the Central government, subject to exemptions.

Taxes can be classified into two different types: direct and indirect taxes. Direct taxes, as the name suggests, are the taxes paid directly to the government. Any individual whose annual income exceeds the maximum exempt limit is liable to pay direct tax as per the Income Tax Act. This includes income tax, corporate tax, capital gains tax, etc.

On the other hand, indirect taxes are imposed on the purchase of goods and services and are collected by those who sell the product or offer the service. These taxes are not directly paid by an individual to the government. For example: GST, excise duty, customs duty, etc.

Filing an income tax return is no longer a tedious task that it used to be. Here’s a step-by-step guide that will help you file income tax without any hassles –

Step 1: First visit the income tax department website i.e., https://incometaxindiaefiling.gov.in.

Step 2: Log in or register to file your income tax return.

Step 3: Choose the ITR of the relevant assessment year.

Step 4: Fill in all the details and validate. The details include name, address, PAN, mobile number, e-mail ID, bank details, and other taxable income.

Step 5: The next step is to calculate tax. If any tax is due, then make sure you pay it immediately.

Step 6: Now click ‘SUBMIT’

As per Income Tax Act, 1961, all companies, whether domestic or foreign are liable to pay corporate tax on the income earned by them. According to the law, a domestic company pays tax on its net income whereas a foreign company pays tax only if the income earned by them is earned within India. The net income of the company that is charged under corporate tax includes

  • Capital profits
  • Income earned from rent property
  • Income earned from lotteries, dividends, etc.
  • Profits earned from the business

In order to determine the capital gain tax, one can make use of the income tax calculator available online. This simple and convenient tool will help you compute capital gain tax in India. To calculate the capital gains, the tax payer needs to fill in few details which includes purchase price, sales price, investment details, sales details, purchase details, etc. Once you have filled in all the details, the next step is to click on ‘calculate’ button. You will get the tax amount that you need to pay.

In India, an individual can pay taxes either online or offline. In case of an offline payment method, a tax payer needs to visit the bank branch and pay the amount of tax due in addition to the dully filled challan. While in case of online payment mode, you can pay taxes with the help of net banking facility. There’s no hassle of paper work in online mode, you simply need to log on to ‘www.incometaxindia.gov.in’ and e-file your income tax.

This is one of the most common deceitful activity to cut down on taxes. If you are submitting fake investment documents to save tax, then get ready for income tax notice. The idea of giving fake/bogus bills and documents in order to lower the tax liability can land you in big trouble. It may result in huge penalties and rejection of claim. As per Income Tax Act, a penalty of 50% could be imposed on the tax payer if the income is misreported.

TCS, also known as Tax Collected at Source, is the amount collected by a seller from the buyer and is remitted to the government. As per the Section 26C of the Income Tax Act, 1961, a seller of specified goods such as timber wood, tendu leaves, liquor, minerals, etc., collect a specified percentage of tax from the buyer during sale. The following people are considered as sellers for tax collected at source –

  • State Government
  • Central Government
  • Partnership companies
  • Local Authority
  • Co-operative society

If you fail to pay taxes in India, then a penalty or punishment under IT act is imposed on you. Not paying taxes is a punishable offence. Therefore, if you do not file income tax returns on time, make calculation errors or mention incorrect income details, then as per Income Tax Act, 1961, you may have to bear hefty penalties in addition to the unpaid tax liability. In worst case, it may even result in jail of a maximum term of 7 years.

Here’re the types of direct taxes imposed on citizens by the government of India –

Income tax – This tax is payable on the income earned by an individual. Income tax is paid directly to the government by the tax payer on an annual basis. In case an individual does not pay taxes on time, then he/she may have to bear huge penalties.

Corporate tax – Corporate tax is a direct tax imposed on the net income of the company, whether domestic or foreign.

Capital gains tax – This tax is payable on the income earned by the sale of a property or asset. The capital assets include businesses, homes, farms, etc.

Form 16 is the certificate of tax deduction at source issued by the employers to their employees. An employee can use this form as a source of information which filing up his/her income tax return. It is mandatory to provide this certificate to the tax payer, just after the financial year. This form has two types – Part A and Part B. Here’s what it includes -

Part A of Form 16 Part B of Form 16
Name of the employer Total Salary Received
Address of the employer Exemptions allowed as per Section 10C
PAN of the employee Gross Income
PAN and TAN of the employer Deductions allowed per Income Tax Act
Summary of the amount deducted and credited quarterly Relief under section 87 and section 89

If you are a non-resident Indian (NRI) who resides and work abroad, then the income tax you pay depends on your residential status. If you fit the criteria of resident Indian during that financial year, then you need to pay tax on your global income. But, if your residential status for that financial year is NRI, then you need to pay tax only on the income earned in India. This includes interest earned on fixed deposits and saving account, rental income from house or property owned in India, etc.

As per Income Tax Act, you are eligible to receive income tax refund only if you have paid excess tax to the government than your actual tax liability. Therefore, a return must be filed by a tax payer in order to claim the income tax refund of that financial year. Once you have fill in all the details in the ITR form, you will be able to see the refund amount automatically just by clicking on the verification sheet. The amount of refund will be decided by the Income Tax department after processing your form.

Any income that is not covered under the below heads is known as ‘income from other sources’:

  • Income from salary
  • Income from capital gains/loss
  • Income from house property
  • Income from business & profession

‘Income from other sources’ is a category under the Income Tax. This usually includes interest income received from fixed deposits, family pension, recurring deposit, savings bank account, etc. Also, this includes taxable gifts, income from lotteries, gambling, winnings, and so on.

Income from other sources is taxed in two different ways –

  • If the income is earned from lotteries, gambling or horse riding, then 30% tax is applicable on the tax amount.
  • On the other hand, if the income is in the form of interest earned from fixed deposit, savings bank account, etc., then the income is liable for 50% tax deduction.

As per Section 10(1) of the Income Tax Act, 1961, agricultural income is exempt from tax. This provision was incorporated because agriculture is a state subject under Indian Constitution as it is seen as a medium of subsistence, in consonance with the pro-agrarian policies of the government. Thus, according to law, the central government can’t impose tax on the agricultural income. Although, state government can levy tax on agricultural income if the net agricultural income is more than Rs. 5,000 or if the gross income, excluding net agricultural income exceeds the basic exempt slab limit.

As per Income Tax Act, it is mandatory for you to file income tax return in India if your annual income falls under income tax slab. If you fail to do so, then you are liable to pay a fine of Rs. 5,000 for filing income tax return after its due date. The penalty amount may go up to Rs. 10,000 if an individual further miss to file a return. In addition to this, the penalty amount shall not exceed Rs. 1,000 if the total income of the tax payer is upto Rs. 5 Lakhs.

It is necessary for an NRI to file income tax returns in India if he/she earns taxable income in India. The income could be from varied sources. It could be rental income from your house owned in India, income earned from salary for the services offered in India, interest earned on fixed deposits or bank savings account, income from capital gains, etc. Like ordinary citizens, an NRI is also required to file ITR if the gross income in India exceeds Rs. 2.5 Lakhs.

A self-employed person is one who is engaged in a self-owned enterprise or offers services to different employers through a business or profession. As per Section 2(7) of the Income Tax Act, all individuals, be it self-employed or salaried are liable to pay tax if their annual income exceeds Rs. 2.5Lakhs. The tax filing process is different for people with different source of income. In case of self-employed individuals, profits earned by a self-employed professional are taxable. The income earned by self-employed professionals comes under ITR-4 form i.e., individuals earning from a business or profession.

As per Income Tax Act, 1961, freelancers too are liable to pay tax for the income they earn, same as salaried or business professionals. Freelancers can deduct expenses that they have to bear while doing the job. They can claim deductions under Section 80C of the IT act to save tax. These deductions will help you reduce your net taxable income.

Net taxable income = Gross taxable income - deductions

Likewise, filing tax returns for a freelance is not as easy as that of a salaried individual. Freelancers fall under business and profession head of the ITR form. Also, they are eligible to claim tax refunds just like any other salaried professional.

You can pay capital gain tax on the profits or gains earned by you on the selling of capital assets such as real estate, bonds, property, etc. There are basically two types of capital gains in India – long-term capital gain (asset held for more than a year) and short-term capital gain (asset held for one year or less). Taxation on long-term capital gain is 20% for real estate and 10% for shares and equity mutual funds. Whereas short-term capital gain is taxed as per individual’s tax bracket.

Tuition fees helps in reducing your tax liability. As per Section 80C of the Income Tax Act, you can avail tax benefits of up to Rs. 1.5Lakh a year on tuition fees which includes admission fees of any college, university or school. For instance, you pay 30% tax every year because you fall under highest tax bracket. Also, you pay 50,000 every year for your kid’s school fees. You can save up to Rs. 15,000 on your personal income tax every year.

India is a federal polity where both Central and State government have the power to impose and collect taxes. Thus, government has come up with two GST systems – State GST and Central GST. Dual GST (Goods and services tax) in India is a simple and transparent tax imposed by Central and State government on the supply of goods and services.

Service charge is paid to the service provider while on the other hand, service tax is payable to the government. Any company, hotel, restaurant, or landlord can impose a service charge in addition to the mandatory service tax. Service tax has now been replaced by GST (Goods and services tax) and thus, customers don’t have to pay it. Goods and services tax is an indirect tax imposed on the consumption of goods and services. Also, as per the latest Supreme Court directive, hotels or restaurants can’t make service charge mandatory for the customer.

Any gain or profit that you earn from a capital asset that was held for a year or less is taxed as per a flat short term capital gains (STCG) tax rate. For securities, STCG is levied on the profit earned from the sale of equity shares or mutual funds. If you fall under 10% income tax bracket, then you generally need to pay more STCG, but if you fall under 20%-30% tax rate slab, then 15% STCG tax rate offers a tax arbitrage.

Any salaried individual, freelancer or businessmen whose tax liability for the year is 10,000 or more should pay advance tax. The payment of advance tax is done by an individual on his own account. Advance tax is calculated on the basis of the current income evaluated by the tax payer during the financial year. You can pay advance tax in quarterly installments. Here’re the due dates for the payment of advance tax in installments –

By 15th June By 15th September By 15th December By 15th March
15% of advance tax 45% of advance tax 75% of advance tax 100% of advance tax

You are required to pay income tax when your total taxable income exceeds the minimum tax slab as per the Income Tax Act. In India, we have different tax slabs based on the earning of the tax payers. Income tax slab rates can be categorized into the following -

Income Tax Slab Tax Rate
Income up to 2.5 Lakhs No Tax
Income between 2.5Lakhs and 5Lakhs 5% of your taxable income
Income between 5Lakhs and 10 Lakhs 20% of your taxable income
Income above 10 Lakhs 30% of your taxable income

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