If you are new to the ITR filing and do not have much idea about income tax, it’s understandable! With a lot of rules, regulations, and compliance, it might seem too confusing to many.
In this piece of information, I will try to help you understand Income Tax in the most lucid manner!
So without wasting much time, let’s get going!
What is the Income Tax?
As per the Income Tax Act 1961, Income Tax is a certain percentage of your annual income that you are mandated to pay to the Government.
The percentage varies as per the tax slab fixed by the Government. If the taxpayer’s annual income is below the tax slab, they are exempted from paying the tax.
Some Important terms
Income Tax Return (ITR)
ITR is a detailed assessment of your income in the previous year and the tax that you are liable to pay to the Government.
Multiple ITR forms like ITR 1, ITR 2, ITR3, ITR4, ITR5, ITR6, and ITR 7 has to filed by the taxpayer, depending on his/her source of Income.
ITR is a vital document, and it is mandatory for all the taxpayers whose annual Income is above the minimum threshold value.
Failure in furnishing the ITR on time can result in a notice from the Income Tax Department. So, it’s better to file your ITR on time and stay fully compliant with the Income Tax Law 1961.
Different Sources of Income liable for taxation.
There are multiple ways in which you generate your Income. You are liable to pay Income Tax on the gross total of all such incomes.
Let’s take a look at the different sources of Income.
Business or Professional Income:
This includes any profit or loss that you generate from any business you undertake to any professional services you provide.
The amount of money that you receive from your employer, as mentioned in the agreement. It includes your salary and any allowances that you are eligible as per your agreement with the employer.
House property Income:
Income generated from any house property that is owned or rented by you is included in this head.
Any profit or loss that you make by selling any asset like immovable property, shares, mutual funds, bonds, or debentures is included in this head.
This head includes Income from other sources like interest on your F.D.s, saving accounts in banks and post office, or gifts.
It is the maximum Income above which the taxpayer will have to file the ITR and pay the Income Tax. At present, the threshold income for a normal taxpayer is 2.50 lakh.
But as per new rules, the taxpayer is exempted from paying the income tax if his/her Income is 5 lakh or below. But, in case if his/her Income exceeds 5 lakh, the tax will be calculated above 2.50 lakh!
So if your Income is 4.75 lakh, you will not pay any tax, but if your Income is 5.10 lakh, you will be liable to pay tax on the 2.60 lakh.
To encourage taxpayers for diversifying their investment and secure their financial future, the Government of India offers various tax exemptions Under Section 80 of the Indian Income Tax Act 1961 (From 80C to 80U).
It’s essential that you should have a clear idea about these deductions, especially the tax deduction U/S 80C.
The deduction under section 80 reduces your gross Income, and hence your tax liability will reduce drastically. So it’s advisable to take maximum benefits of these tax deductions by investing in exempted instruments!
TDS (Tax Deducted at Source)
This is the advance tax that is deducted from your Income by your employer, banks, post office, or to whom you have supplied some service in return for remuneration.
The deductor is liable to deposit this tax with the Government at regular intervals.
You will have to submit your TDS certificate while filing your ITR at the end of each financial year.
If your Income is below the threshold income, you will get a full rebate on your TDS.
If your Income is above the threshold, TDS will be adjusted against your tax liability.
The financial year is a period of 12 months, starting from 1st April of the year to 31st March of the next year. The annual tax is calculated on your Income during this period.
So, at present, you will be filing your Income Tax Return for the Financial Year (F.Y.) 2019-2020.
It’s the year during which you assess your Income and prepare your Income Tax Return for the previous financial year.
At present, your assessment year will be Assessment Year (A.Y.) 2020-2021.
In short, you will file your ITR for the FY 2019-2020 in the AY 2020-2021.
I hope you have understood the basic concepts of Income Tax at the end of this discussion!
Being a responsible citizen, it’s your legal and moral duty to file ITR and pay tax on time.
If you feel the process is complicated and you need assistance, our Income Tax experts are ready to help you out round the clock!
Probal Consulting Group is a leading Taxation and Accounting firm that helps individuals, MSMEs and other businesses manage their accounting, taxation, and other regulatory compliance in an affordable manner.