The Central government is responsible for imposing and developing Income tax laws. Taxable income of individuals, companies, firms, Hindu Undivided Families (HUFs), local authorities, and other associated persons are taxed.
Depending on the status of the taxpayers, taxation laws are updated to fit current regulations. Those who are qualified and residing in India must pay taxes calculated through their total income.
The taxpayer amount changes from year to year depending on the market and inflation rate. Following taxation regulations, individuals must file their Income Tax Returns (ITR).
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Table of Contents
- What are the basics of filing income tax returns?
- Punishment for Tax Evasion
- Grasping the Essential Elements
- Previous Year
- Assessment Year
- Deductions
- Section 80 C
- Tax Slabs
- What Are The Benefits Of Filing Income Tax Returns?
- Taxation for HUFs
- Wrapping Up
Individuals must go through the process of income tax filing and returns to file information and data about their income to tax authorities. This computation of gross income helps determine the individual’s tax liability for a given financial year.
If the taxpayer accidentally pays more taxes than they should, they are eligible to receive an income tax refund from the IRS.
According to taxation laws, individuals or businesses must submit a tax return for each financial year. Returns can be taxable income from salaries, capital gains, properties, dividends, interests or other sources.
Tax returns have a specific deadline, and filing them late will bring about a penalty.
People who fall under the classification of income tax brackets should file their income tax returns on time. You can use an online income tax calculator to ascertain your culpable taxes and keep away from severe judicial laws designed to deter willful tax evasion. If they don’t comply, they will have to pay a penalty of Rs. 5000. In special circumstances, the assessing officer may increase or reduce the penalty amount.
Tax evasion is an egregious crime, and if it is done willfully, it will result in a prison sentence. The length of the sentence can range from three months to two years depending on the situation.
Understanding the Crucial Aspects
1. Previous Year
As per income tax regulations, the money earned during a calendar year must be filed and paid the following year. The year in which the income is earned is commonly referred to as the “previous year” and it always consists of 12 months.
2. Assessment Year
After the financial year ends, the assessment year begins. During the assessment year, income earned in the financial or fiscal year must be accounted for and taxes must be paid. In terms of income tax, individuals or businesses are responsible for paying taxes on money earned in the preceding financial year during this assessment year.
3. Deductions
Tax deductions lower your overall income. By providing these deductions, the Income Tax Department enables you to reduce your tax burden.
Taxable Income is equal to Gross Income minus any deductions.
Taxpayers may decide to select either the standard deduction or itemized deductions. If they go with itemizing, the deductions will surpass the standard deduction limit.
4. Section 80 C
Tax deductions are allowed under Section 80 C and are highly favored by taxpayers, allowing individuals and HUFs to save up to Rs. 1.5 lakhs annually in tax payments.
Deductions can be claimed for investments in Public Provident Fund (PPF), Employees’ Provident Fund (EPF), Life Insurance (LIC), equity-linked schemes, housing loans, stamp duty, Sukanya SmridhhYojana (SMY), a special scheme for seniors, fixed deposits (FD) and more.
This tax deduction is divided into:
- As per Section 80 CCC, payments for annuity pension plans including interest or bonus accrued are deductible and taxed in the year of receipt.
- Under Section 80 CCD (1), individuals can take advantage of reduced taxation towards the NPS (National Pension Scheme).
- Section 80CCD (1b) states that depositing in the NPS scheme or Atal Pension Yojana can generate an additional tax liability of up to Rs. 50000.
- According to Section 80 CCD (2), employers must contribute 10% of their employees’ salaries as a tax deduction. This section does not cover non-salaried or self-employed individuals.
5. Tax Slabs
In India, individuals have taxes based on the slab system. Depending on income levels, the rates of taxation differ. As per the government budget for each financial year, taxes are required to be paid by anyone with an income of Rs. 2.5 lakhs or higher.
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As per the Income Tax Act, taxpayers in certain income brackets must pay taxes. The following entities must file their ITRs:
- People who are 60 years or younger earn Rs. 2.5 lakhs should file their ITR. Senior citizens aged 60 to 79 have an increased income limit of Rs. 3 lakhs and it becomes even higher for super senior citizens aged 80 or more.
- Registered Companies
Tax must be paid by companies that have successfully generated income throughout the year, whether they achieved profits or not.
- If you want to be reimbursed for the additional taxes paid, you must submit an ITR.
- People who own assets or financial instruments stored outside of India.
- Foreign firms that receive tax benefits in India for transactions made there.
- Non-Resident Indians earning more than 2.5 lakhs in India over one fiscal year.
According to section 2(31) of the Income Tax Act, HUF (Hindustan United Family) is considered a separate individual entity for taxation purposes.
- For HUFs, the tax is assessed according to each individual’s slab rate.
- A HUF liable to Alternative Minimum Tax must pay below 18.5% (with cess and surcharge) of their Adjusted Total Income, subject to certain terms and conditions.
According to the tax brackets in place and the budget for the year, people within a taxable bracket need to pay taxes to support the Indian economy. Those found guilty of avoiding taxes might face prison time.
