Income tax refers to a tax levied on the income or profits. Income tax levied on business is also called a corporate tax. All the major tax in India are imposed by the central government and a few small ones by local authorities like the Municipality. There are two types of taxes-direct and indirect tax. Direct tax refers to the tax directly levied on a person’s income while indirect tax can be of various forms like service tax, Value Added Tax, Restaurant bill etc.
The income tax act is under the mandate of Income Tax Act 1961. The IRS which is the acronym for Indian Revenue Service deals with the collection and administration of various taxes. The logo of the income tax department “Kush Mulo Dand” is a verse taken from Kautilya’s “Arthashashtra” which means that as citizens of India we should understand the importance of paying taxes and any person not doing so is punishable by law.
Importance of Paying Tax
Regular payment of tax fall under civic duty and not paying taxes is punishable by law and might lead to fine or imprisonment.
The importance of paying taxes are
- The taxes that we pay goes to a number of places. They are paid for the manufacturing and maintenance of roads, infrastructure, the establishment of libraries and public parks etc.
- Taxes are also a major source of revenue for various government schemes and scholarship meant for the weaker section of the society.
- Further, part of our income tax also goes to the defense sector of the country including police and firefighters.
Eligibility for Income Tax
Salaried people are required to pay a part of their income as income tax. To pay income tax a person should fill form 16. It is basically a certificate by the employer stating the deduction of TDS on the salary. The form is issued at the end of each financial year. However, not everyone is required to file for income tax. In case a person is not eligible then he or she is not required to fill form 16. In such a case, the employer does not provide this form to the employee. The eligibility for taxation for people who are less than 60 years for the financial year 2017-18 are for both men and women are
|ANNUAL INCOME||TAX RATES|
|Salary up to 250000||NIL|
|Salary between 250001 to 500000||5% tax levied on the income|
|Salary between 500001 to 1000000||Rs 12500 and 20% of income|
|Above 1000000||Rs 112500 and 30%of income|
Taxation for people (both men and women) above 60 years and less than 80 years
|ANNUAL INCOME||TAX RATES|
|Salary up to 300000||NIL|
|Salary between 300000 to 500000||5% tax levied|
|Salary between 500001 to 1000000||Rs 1000 and 20% tax is levied|
|Above 1000000||Rs 110000 and 30% is levied|
Taxation for people above 80 years (both men and women)
|ANNUAL INCOME||TAX RATES|
|Salary upto Rs 500000||NIL|
|Salary between Rs 500001 to 1000000||20% of tax is levied|
|Above 1000000||100000 and 30% of tax is levied|
Income tax for business or corporate tax criteria are
|INCOME SLABS||TAX RATES|
|If income is less than 10,000||10% of the income|
|Between 10,000 and 20,000||20% of the income which exceeds 10,000|
|More than 30,000||30% of the income which exceeds 20,000|
The list of documents required for tax deduction should be collected beforehand so as to avoid last minute haste.
The list of documents required are
- ID Proof: PAN card, passport, Aadhaar card
- Salary proof: Form 16 (part A and part B and 12 BA)
- Proof of income in the form of interest
- Bank passbook or interest certificate on saving account
- Interest certificate for all fixed deposits
- Income from other sources like commission, dividend etc.
- Proof of tax saving investments like NSC, life insurance, PPF etc
- Proof of income from property
- Certificate of possession of the property
- Receipts of municipal taxes
- House loan certificates
- Form 16A on rent
- Proof of capital gain
- sale of property sale deed
- sale related expenses
- expenses relating to purchase
- reinvested property’s sale deed
- Other claims from employers
- Rent Receipt
- Travel cost
Form 26AS: it deals with all the incomes earned during the year and the tax deducted on the spot.
Income Tax Returns
Tax returns are basically the various income and refund to be earned by a person from the Government like tax liability, details of tax paid etc. Income tax returns basically form that every salaried person is required to file every year to the Income Tax Department. If excess tax has been paid in a year then the person is liable for refund depending upon the interpretations and calculation of the income tax department. Income Tax returns require the correct form to be filled.
ITR 1: This is a very easy and simple form. Here the details regarding salary/pension or income from property and other sources must be mentioned. However, this form need not be filled by a person whose income is more than 50 Lakhs, have a taxable capital gain, foreign assets, income from business or other professions, income from more than one house property and if income from agriculture exceeds Rs 5000.
ITR 2: This form is to fill if a person gets income from salary or pension, income from capital gains, income from house properties, income from foreign assets and other sources of income and if agricultural income is more than Rs 5000. This form should not be filled if a person gets income from business or profession.
ITR 3: This form is to be filled by an individual or Hindu Undivided Family when the source of income is from a business or profession, house property, pension/salary or other sources. This form should not be filled if a person has opted for resumption taxes.
Things to be kept in mind while filing IT returns
- A person should mention in their tax returns regarding deposits which have been more than 2 lakhs after demonetization.
- The cash deposited should match with the information provided while filing an ITR. In case of a mismatch, a person can face a penalty.
- Income from interest should also be mentioned like income from interest on tax saving schemes and deposits.
- Aadhaar must not only be linked with PAN but an individual should also mention Aadhaar details while filing tax returns. Not doing so might invite prosecution or fine under section 277
- Income from the previous employer should also be mentioned
- If a person is working abroad then he or she is required to give details of the foreign bank account, date of opening, interest incurred and field number.
- The Tax department also asks for information about financial assets if the earning is more than 50 lakhs
- Lastly, a person should keep in mind the last date of filing tax returns.
Income Tax Refund
If a person pays more taxes then he or she is liable for income tax refunds based on the calculations and interpretation of the Income Tax Department. The refund can be filed both online as well as physically. Normally the refund takes place within 2 to 6 months. The status of the refund can also be checked online. It will be paid either directly to the bank account or via cheque. The following steps should be taken while filing for a refund
For the online filing, the following steps should be taken
- Visit the official website of the Income Tax Department
- Enter your user id and password
- After logging in select the “my account”tab and then select “refund reissue request” option in the drop down menu
- After this, a form will appear on the screen. The tax payer is required to fill the form and then click on”validate” for the successful submission of the claim.
The procedure of Paying Income Tax
Income Tax can be paid both offline as well online. If a person wants to pay offline these steps should be taken.
- Download the ITR-V document. To download one should visit the income tax department official website.
- After downloading the form, PAN number and date of birth must be used as a password to open the form. It must be noted that the password should be written in the appropriate box, should not have any space in between and should be written in small letters.
- The ITR-V comprises of one page and it should be signed with blue ink by the taxpayer
- The form should be sent via post to the following address:
Post Bag No 1, Electronic City Post Office,
For online tax submission, the following steps should be taken
- Visit the official website of Income tax department for income tax e-filing
- Click on “register yourself” in the top right-hand side corner of the page
- After this, a registration form will appear, select the user type as either “individual” or “HUF” and then click on “continue”
- After selecting the user type, a basic details form will appear. It is mandatory to fill all the boxes where the asterisk is provided and then click on “continue”
- After filling in the basic details, a registration form will appear on the screen. All the asterisk marked boxes are mandatory and the user should provide the current mobile number and e-mail id.
- After filling up the registration form click on “submit”. After successful registration, a mail will be sent to the registered email id confirming the registration and an OTP will be sent to the registered mobile number.
- The mail sent by the Income Tax department will consist of an activation link.
- When the activation link is clicked it will get redirected to the activation page where the user is required to provide the OTP received in his or her registered mobile number and then hit the “submit” button
- The registration process gets completed after submitting the OTP.
Another way of online tax payment
- Visit the e-filing website of the income tax department
- Go to e-file and click on “prepare and submit ITR online”.(user can fill only ITRs1 or 4s online)
- Select the ITR form and the assessment year
- After filling the ITR form click on “submit”
- The digital signature certificate must be uploaded if applicable and then click on “submit”
- If the Digital signature certificate is not uploaded then the ITR-V link will be displayed. After clicking on the link the user is redirected to the ITR-V form. The form will be sent to his or her email id. If the digital signature certificate is uploaded then the return filing process is complete.
Tax Saving Instruments
There are a number of tax saving schemes and deposits like PPF, NPS, NSC, ELSS, Fixed deposit etc. that can be used for reducing the income tax burden. Some of the major tax saving schemes and deposits in India are:
Public Provident Fund: It is also commonly known as PPF. It is a tax saving cum pension scheme. It acquires maturity after completing 15 years. The minimum deposit per year is Rs500 and the maximum deposit is Rs 1.5 lakhs per annum.
Fixed Deposit: It does not have a fixed maturity period. The deposit can be opened after 10 years or even after 7 days. There is no upper limit on the maximum investment
Mutual fund/ELSS: The minimum maturity period of mutual funds is three years. The minimum investment is Rs 500 and there is no upper limit on the maximum investment. However, the tax is deductible only on a maximum of 1.5 lakhs per annum.
NSC: The NSC can be bought with the denomination of Rs100, Rs500, Rs1000, Rs5000 and Rs10000. There is no limit on the maximum amount of investment that a person can invest. However it the tax is deductible only till 1.5 lakh rupees per year. There are maturity period, one for 5 years and one for 10 years.
Recurring deposit: the term period varies from 1 year to 10 years. The minimum deposit should be 1000 but tax will be exempted if the interest earned is more than 10000.
The government of India has made it mandatory for all taxpayer to link their PAN cards with their Aadhaar cards. This step is taken to prevent fake PAN cards. Infant in a recent report it has been stated that the government has deactivated multiple PAN cards due to there multiple presences so as prevent tax circumvention. As many as 11.44 lakhs PAN cards have been deactivated. This has been done to prevent fake identities and illegal purchase of properties. The PAN and the Aadhaar can be linked with the following steps:
- Visit the official e-filing website of Income Tax department
- Click on “link Aadhaar” in the left-hand side of the page
- After this a form will appear whereby the user is required to fill in the details of his PAN number, Aadhaar number, Name as per Aadhaar, date birth. The user can verify either by entering the captcha code or request for an OTP.
- The OTP will be sent to the registered mobile number.
- After verifying, click on link Aadhaar.
The Government has decided to mandate linking Aadhaar with PAN for income tax filing and also the deadline for linkage has been extended to 31 Aug 2017.
Check out the procedure to link Aadhaar with Pan using this Link.