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Income tax is a tax imposed on any individual or by a corporate by the government who earns income. In simple words, it is the tax paid on income.
A survey says that paying Tax has been in existence for more than 2,500 years. People need to pay tax based on their profession. India is a pioneer in developing a stable tax system. The source for the income may be from salary, House/Property, Business and Profession, capital gains, and income from other sources. This tax is the contribution by an individual or group of individuals for the development of the Country.
Income from Salary:
All income received in the form of salary can be taxed. It is the money received by an individual from an employer.
• Medical reimbursements (up to INR 15,000 /yr) are tax free when it is supported by necessary bills.
• Conveyance allowance (up to INR 800/month) is tax free and no bills are required.
Income from House / Property:
Income from House or other property is estimated from the Annual value. The annual value includes the Rent received, Municipal Valuation and Market value.
Capital gains are form of income acquired from selling capital assets. The capital assets include real estate, equity, shares, bonds, Jewellery, art work and paintings etc. Sale of capital assets is a form of income.
Income Exempt from tax:
• Any Money received from an Insurance company by maturity of an insurance policy is an income which has tax exempt.
• Income from Public Provident Fund (PPE).
• Some deduction also comes under tax exempt if the total limit of the deduction is not more than INR 100,000.
The deductions can be from any one of the following:
• Contribution for Provident Fund
• Money paid for life insurance scheme.
• Investment in pension plans.
• Investments in mutual funds.
• Investment in National Savings Certificates.
• Re - payment of housing loans or any registration fee paid.
• Payments made for tuition fees for children paid to school or college or any other educational institution.
Medi-claim policies provide us a deduction from tax up to INR 15000 and for the senior citizens it is INR 20,000. This deduction is not applicable only for the amount paid for them but also for the amount paid for their spouse, parents or children.
Interest paid on Housing Loans:
Interest paid on a housing loan up to INR 150,000 per year is tax free.
Income tax brackets for individual is divided into three slabs
Income tax is not applicable for individuals whose annual income does not exceeds INR 110,000 and for women it is INR 145,000 and INR 195,00 for senior citizens.
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"Income Tax in India." 123HelpMe.com. 22 Jul 2019
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From INR 110,001 to 150,000:
For men - 10% of amount greater than INR 110,000 need to be paid as tax.
For Women - The lower limit is INR 145,001 and the percentage need to be paid by them is 10% of the amount above INR 145,001.
For Senior citizen the lower limit is INR 195,000 and they don’t fall under this slab.
From INR 150,001 to 250,000:
For Men - 20% of the amount greater than INR 150,000 and less than INR 250,000 plus an amount of INR 4,000.
For women - The tax they need to pay is 20% than INR 150,000 and less than INR 250,000 plus an amount of INR 500.
For Senior Citizen - Their lower limit is INR 195,000 and the amount they need to pay is 20% above the amount INR 195,000 to 250,000.
For Men: If the income is above INR 250,000 they need to pay 30% of amount greater than INR 250,000 plus an amount INR 24,000.
For Women - 30% of the amount greater than INR 250,000 plus an amount of INR 20,500.
For Senior citizen - 30% of the amount greater than INR 250,000 plus an amount of INR 11,000.
Surcharge of 10% is applicable if the taxable income paid is above 1 million.
Income tax system differs from one country to another. Income tax planning is to minimize the income tax liability.
The following are few tips to reduce your TAX:
#. Invest Wisely - Investing wisely helps to reduce the tax paid.
#. The income earned by you can be transferred to other family members whose income is below the tax slab.
#. Income can also be postponed to a later year to minimize your tax paid during the current financial year.
#. Take up all the deductions which you can avail to reduce your tax.
#. Invest on Mutual funds and other Insurance scheme.
#. Consider investing on shares.
#. Plan all your income and maintain necessary records to support.
Those who fall under the tax bracket need to know about PAN and TAN.
Permanent Account Number (PAN) is a ten-digit alpha numeric number, issued in the form of a card by the Income tax department. All the taxpayers who are required to file their income need to possess the PAN card. It is mandatory to note the PAN in all the documents related to financial transactions. It is necessary to quote PAN on return of income.
TAN or Tax Deduction and Collection Account Number is a 10 digit alpha numeric number required to be obtained by all persons who are responsible for deducting or collecting tax. All those persons who are required to deduct tax or collect tax on behalf of Income tax department need to apply and obtain TAN.