There are numerous costs involved when it comes to running a country. To pay for those costs, the government collect taxes from its citizens. With the funds secured from taxes, the government is able to fulfill its various responsibilities such as the provision of public services like healthcare, education and housing among others.
The government imposes two types of taxes, direct tax and indirect tax. A direct tax is applied on the earnings secured through a job or business. While, indirect taxes are applied to the manufacture or sale of goods and services, i.e GST.
Income Tax:
Income taxes are a form of direct tax and one of the major sources of revenue for the government. It is a tax that the government imposes on income generated by citizens in the form of a salary or revenue secured from a business.
Most countries use a progressive income tax system in which higher-income earners pay a higher tax rate compared to their lower-income counterparts. With this, the burden on the lower income earner group is considerably reduced.
Income Tax in India:
In India, income tax is measured by the Income Tax Act, 1961. This tax applies to the range of income, which is called Income Tax Slabs. These tax slabs are defined in the union budget of every financial year and subject to change.
During the budget session (generally during the month of February), the Finance Minister announces the slab rates of Income Tax in the Union Budget each year. It is charged differently for different demographics such as individuals, partnership firm, company, etc.
But the income tax department also provides some relief to taxpayers in the form of various deductions for income before the calculation of tax. These deductions are also announced with the income tax slab rates during the annual budget session. These deductions can range from additional investments for tax savings to the start of some new schemes.
As a taxpayer, this is most important part to focus on as these deductions and exemptions can help you remain in a lower tax slab, resulting in a reduction of your tax liability (or increasing the size of your tax refund) in the process. To know how the tax liability is calculated and which deductions are applicable to you, check out this website to know more.
Income Tax Slabs:
The Income Tax Slabs are mainly divided into the following four categories,
Income which is chargeable to No tax
Income which is chargeable to 10%
Income which is chargeable to 20%
Income which is chargeable to 30%
In addition to the above tax, Surcharge (EC), Swach Bharat Cess and Secondary And Higher Secondary Education Cess (SHEC) are also charged over and above the income tax.
Income Tax Return:
It is mandatory that every taxpayer files their income tax return to calculate and submit their tax obligations within a specified due date. During this process, an individual needs to provide clear details of the income earned and the income tax charged through the income tax returns. Income tax return is a statement showing all the sources of revenue, the deductions, tax payable or tax refund.
Once calculated, the tax must be paid by the individual. Failing to pay taxes would invite penalties from the Income Tax Department. Return amount can also be claimed in case somebody paid more money than their actual income tax.
Among many other benefits, filing returns in the right manner is a sign of a good law-abiding citizen. It also ensures that individuals and businesses enter their subsequent transactions with transparency since their income is recorded by the income tax department.
That pretty much sums up the insights on income tax slabs for now. Let me know what do you think about these tax slabs in the comments below.
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