What Is Income Tax?
An income tax is the tax levied by the government on all the entities that generate income through any activity. As per law, every individual or business firm is subject to income tax and it has to be paid to the government at the end of the financial year. Income tax is one of the major sources of income for the government and it helps them get the necessary funds in order to serve the public and build infrastructure for the country.
Income Tax in India
There are two kinds of taxes in India – direct and indirect.
A direct tax is a tax you pay on your income specifically to the legislature. Indirect tax is a tax that eateries, theatres and web based business sites charge you on for merchandise or an administration. This tax then goes to the government. Indirect taxes take numerous structures: service tax on restaurant bills and movie tickets, value added tax or VAT products, for example, garments and home appliances.
GST (Goods and services tax) has replaced all the indirect taxes and made it easy for business owners they have to pay only GST now. GST slabs are well known and transparent making it easy for people to run their business honestly.
Income Tax Basics Explained
Everyone who generates money in India is subject to Income Tax. It includes salary, pension, interest on fixed deposits or savings account, rental income, sale of capital assets (house or shares), profits earned while running a business, freelancing journalism, profits earned in business and cash earned from winning cash competitions.
Tax Slabs in India
Taxes on Income are divided into four brackets or slabs that are as following:
1. Income up to 2.5 lacs – no income tax
2. Between 2.5 and 5 lacs – 5% income tax
3. Above 5 lacs but less than 10 lacs – 20 % income tax
4. Above 10 lacs – 30% income tax
It varies for senior and very senior citizens. Please refer to table below.
Knowledge of tax slabs are important while filing your IT returns. Many people end up paying more than required. You need to hire a CA or seek help from financial advisor to understand and pay appropriate Income Tax.