Taxes in India can be categorized as direct and indirect taxes. Direct tax is a tax you pay on your income directly to the government. Indirect tax is a tax that somebody else collects on your behalf and pays to the government e.g. restaurants, theatres and e-commerce websites recover taxes from you on goods you purchase or a service you avail. This tax is, in turn, passed down to the government. Direct Taxes are broadly classified as :
Income Tax – This is taxes an individual or a Hindu Undivided Family or any taxpayer other than companies, pay on the income received. The law prescribes the rate at which such income should be taxed
Corporate Tax – This is the tax that companies pay on the profits they make from their businesses. Here again, a specific rate of tax for corporates has been prescribed by the income tax laws of India
Everyone who earns or gets an income in India is subject to income tax. (Yes, be it a resident or a non-resident of India)
For simpler classification, the Income Tax Department breaks down income into five heads:
|Head of Income||Nature of Income covered|
|Income from Salary||Income from salary and pension are covered under here|
|Income from Other Sources||Income from savings bank account interest, fixed deposits, winning KBC|
|Income from House Property||This is rental income mostly|
|Income from Capital Gains||Income from sale of a capital asset such as mutual funds, shares, house property|
|Income from Business and Profession||
This is when you are self-employed, work as a freelancer or contractor, or you run a business. Life insurance agents, chartered accountants, doctors and lawyers who have their own practice, tuition teachers
Free Income Tax Calculator for AY 2010-11 to AY 2020-21
Individuals whose annual income is in excess of the basic exemption limit of Rs 2.5 lakh must mandatorily file their income tax returns. Even when there is no tax liability, an income tax return (ITR) must be filed if the total income exceeds the above-mentioned threshold.
‘Income tax return’ is a form in which taxpayers declare details of income, deductions, exemptions, and taxes payable on their taxable income. Filing income tax return is mandatory to claim tax deductions under Section 80C, 80D, etc. and other eligible exemptions like long-term capital gains exemptions, which may eventually bring your taxable income to zero.
Filing ITR not only keeps you tax-compliant, but also offers the following benefits:
1. Filing ITR avoids penalties
Effective from FY 2017-18, the Income Tax Department levies a penalty of Rs 10,000 under section 234F on individuals who do not file their income tax return. Filing ITR on time avoids unnecessary penalties. Even though the penalty has been kept at Rs 1,000 if your annual income is not more than Rs 5 lakh, as a law-abiding citizen, it is your duty to file your tax returns.
2. ITR receipt is a very important document
You need to preserve ITR receipts carefully as they are very important proof of your income and of payment of your taxes. It is much more detailed than Form 16. It contains your total income details and has details of your income from other sources.
3. ITR receipt is a useful document for hassle-free processing of bank loans
Most banks and NBFCs ask for ITR receipts of the latest three years when you apply for high-value loans like home and car loans. Lenders consider ITR as the most authentic document supporting an individual’s income. Hence, you should regularly file income tax return if you are planning to avail home or car loans in the future.
4. Visa processing
Embassies of developed countries like the United States, United Kingdom, Canada, and Australia ask for ITR receipts of the past years to process your visa application. They are very particular about your tax compliance and hence, you are asked to furnish past ITR receipts. This helps them assess your income and ensure that you are able to take care of the expenses on your trip.
5. Compensate losses in the next financial year
Individuals cannot carry forward losses of the current financial year to the next financial year until an ITR is filed. As per the income tax law, individuals are not allowed to carry forward losses and set them off against future years’ income if the ITR is not filed within the due date. Hence, it is important to file your income tax return on time in order to claim the losses in future years.
TYPES OF ITR
Income Tax Form
Types of Income Tax Return Forms : – To file tax returns Income Tax Department had issued a series of forms applicable to different type of assesses:
ITR 1 : For Individuals having Income from Salaries, one house property, other sources (interest etc.) and having total income up to Rs.50 lakh.
ITR 2 : This form is applicable For Individual & HUFs not carrying out business or profession under any proprietorship.
ITR 3 : This form is applicable For Individuals & HUFs having income from a proprietary business or profession.
ITR 4 : This form is applicable For presumptive income from Business & Profession.
ITR 5 : This form is applicable for a For persons other than – (i) individual,(ii)HUF, (iii) company, and (iv)person filling ITR-7
ITR 6 : This form is applicable For Companies other than companies claiming exemption under section 11
ITR 7 : This form is applicable For persons including companies required to furnish return under section 139(A) or section (1394B) or section 139(4C) or section 139(4D) or section 139(4E)
*WHAT IS INCOME TAX?
A. It is a tax levied by the Government of India on the income of every person. The provisions governing the Income-tax are covered in the Income-tax Act, 1961.
*WHO IS SUPPOSED TO PAY INCOME TAX?
.A. Income-tax is to be paid by every person. The term ‘person’ as defined under the Income-tax Act under section 2(3) covers in its ambit natural as well as artificial persons.
For the purpose of charging Income-tax, the term ‘person’ includes Individual, Hindu Undivided Families [HUFs], Association of Persons [AOPs], Body of individuals [BOIs], Firms, LLPs, Companies, Local authority and any artificial juridical person not covered under any of the above.
Thus, from the definition of the term ‘person’ it can be observed that, apart from a natural person, i.e., an individual, any sort of artificial entity will also be liable to pay Income-tax.
*HOW CAN I KNOW THAT THE GOVERNMENT HAS RECEIVED THE AMOUT DEPOSITED BY ME AS TAXES IN THE BANK?
The NSDL website [http://www.tin-nsdl.com] provides online services called as Challan Status Enquiry. You can also check your tax credit by viewing your Form 26AS from your e-filing account at www.incometaxindiaefiling.gov.in
Form 26AS will also disclose the credit of TDS/TCS in your account.
1) IF I WIN LOTTERY OR PRIZE MONEY IN A COMPETITION, AM I REQUIRED TO PAY INCOME TAX ON IT?
>>Yes, such winnings are liable to flat rate of tax at 30% without any basic exemption limit. In such a case the payer of prize money will generally deduct tax at source (i.e., TDS) from the winnings and will pay you only the balance amount.
2) UNDER HOW MANY HEADS THE INCOME OF A TAXPAYER IS CLASSIFIED?
>>Income-tax Act has classified the income of a taxpayer under five different heads of income, viz.:
Income from house property
Profits and gains of business or profession
Income from other sources
3) WHO IS NOT REQUIRED TO PAY ADVANCE TAX?
>> A resident senior citizen (i.e., an individual of the age of 60 years or above during the financial year) not having any income from business or profession is not liable to pay advance tax.
>>Taxpayer who opted for presumptive taxation scheme of section 44AD or section 44ADA is liable to pay 100% of advance tax by 15th March.
4) CAN PAYMEMT OF ADVANCE TAX BE MADE THROUGH ANY BANK ACCOUNT?
>> It is not necessary to make the payment of taxes from assessee’s own account in an authorized bank.
>> An assessee can make the payment from account of any person.
>> However, the challan for making such payment must clearly indicate the Permanent Account Number of assesse on whose behalf the payment is made.
Documents you must have with you while filing your income tax return
below are the documents that are needed to file your income tax returns:
Form 16: Form 16 is also known as the TDS (Tax Deducted at Source) Certificate. Form 16 is the base for filing the income tax returns. Thus, Form 16 is the first form that should be collected. The form is provided by your employer after furnishing the information related to the taxes paid on behalf of you. This is done after taking your salary, allowances, and deductions into consideration.
Form 16 A: Form 16 A is the document which records all the details related to tax deducted at source by deductors other than the employer. This tax is usually deducted by banks or other institutions for the interest or commission which is earned by you during the year. This Form can be collected from the respective banks or institutions.
Form 26AS: Form 26AS reflects the details of every tax deducted from your income by any deductor and deposited on your behalf. Form 26AS can be downloaded from the official website of the income tax department. On selecting the Form 26AS option on the website, you will be automatically redirected to the TRACES website, from where you can download the statement. This statement shows the total amount of tax paid against a PAN in a financial year. If there is any discrepancy, it is suggested that you pay the necessary tax in order to avoid any kind of trouble in the future.
Capital Gain Tax: In case you have invested in shares, mutual funds, etc., you are required to collect a capital gain statement. This statement will be issued by your broking house. It contains the details of all the short-term capital gains that are required to be paid in case you have exited certain shares before the tenure of 1 year. Even though you may not have to pay taxes on long-term capital gains, you are required to mention them as well in your statement.Aadhaar Card: There is a stay order on the Aadhaar and PAN linking mandate, as the judgement is pending in the Supreme Court. However, it is recommended to keep the Aadhaar card ready as you are needed to provide your Aadhaar number in the ITR form. Aadhaar number makes the e-verification process simpler as you would just have to use the One Time Password (OTP) that is sent to your phone number which is registered with your Aadhaar.
PAN card: PAN card is one of the most important documents that you should keep ready with you. Your Permanent Account Number (PAN) acts as your identity proof and has to be mentioned in your Income Tax Returns.
Self assessment Challan/Advance tax Challan: In case you have done a self assessment and paid any self assessment tax, you are required to fill up the details in the respective form while filing your Income Tax Returns.
Details about all your bank statements: You will have to provide the details of all your savings accounts while filing your Income Tax Returns (ITR). That is because the details of your savings account interest and Fixed Deposit interest are needed. The total interest amount from these sources is to be furnished under the ‘Income from Other Sources’ head. The deductions under Section 80TTA can be claimed only after recording all the interests earned during the financial year. It also needs to be noted that the deductions under Section 80TTA are applicable only for Savings Account interest. Interest earned on Fixed Deposits are not applicable.
Statement related to home loan: In case you have taken a home loan, you are required to collect the statement of the loan. The home loan statement allows you to ascertain the deduction that you need to claim for the principal and the interest on the basis of the break up furnished in the statement. Deductions on the principal amount can be claimed under Section 80C while the deductions on the interest amount can be claimed under Section 24.
Details related to property: While filing the ITR forms you have to mention the details of any property that you have bought or sold during the financial year. Details such as ownership, purchase, sale, rental incomes (if any) etc. are to be provided. In case of disposal of a property, you have to furnish the details related to any long-term or short-term capital gains arising out of it.
Deductions under Section 80D to 80U: Apart from the standard deductions under Section 80C, an individual can also claim exemptions under Section 80D to 80U of the Income Tax Act.
Tax-saving proofs: You can lower your tax liability by claiming exemptions on the investments and expenditures that are eligible for exemption under Section 80C, Section 80CCC, and Section 80CCD(1) of the Income Tax Act. A few common tax-saving investments and expenses are:
- Employees Provident Fund (EPF)
- National Pension Scheme (NPS)
- Life insurance premiums paid
- Investments in ELSS schemes of mutual funds
- Public Provident Fund (PPF) etc.
Salary slips: For salaried taxpayers, it is important to keep the salary slip ready. The salary slip consists of all the basic details related to the salary of an individual including basic salary, Dearness Allowance (DA), TDS amount, House Rent Allowances (HRA), Travelling Allowances (TA), standard deductions, etc. These details are necessary to file the income tax returns.
Interest certificate from Banks and Post Office: The interest earned by an individual from savings bank account, fixed deposits, recurring deposits, and post office savings account are considered to be ‘Income from Other Sources’ and are taxable. Thus, it is important to collect the interest certificates pertaining to these, in order to furnish the details of the total interest earned during the financial year.
Income Tax (IT) Login details: Lastly, you would need your IT login credentials to log in to the official portal and start the e-filing process.