All you need to know about income tax
Income Tax in India
Income tax is a type of direct tax that you must pay to the Indian government if you earn money in the country. Whether you are an Indian citizen or a non-resident Indian, any money earned in India is taxed under the Indian Income Tax Act of 1961. Indian citizens pay income tax on their worldwide earnings (both in India and overseas), whereas NRIs pay income tax exclusively on their earnings in India. As a result, if you earn money, you must pay income tax.
Also Read: Income Tax Return Filing
Who is responsible for paying income tax?
The following individuals are responsible for paying income tax:
- Hindu Undivided Families (HUF)
- Association of Persons
From the standpoint of income tax calculation, the term ‘income’ refers to all types of income you generate in a year. Income is distributed to each relevant head of income under the income tax laws, which recognise five types of income. The following are the five categories into which revenue is divided:
Heads of revenue
- Salary-based income
This is the most common and extensively used revenue source. If you work as a salaried employee, your pay falls under the category of income from salary.
- Rental property revenue
The rental revenue obtained by renting out a home property is referred to as income from house property. In this context, a home property might be either residential or commercial.
- Business or profession-related earnings
If you own a self-employed business or practise a profession, the income you generate from it is reported under the heading income from business or profession.
- Gains on capital investments
Capital gains occur when you sell a capital asset for a profit. A capital asset is any property that the taxpayer owns (excluding inventory and accounts receivable). A capital gain occurs when a capital asset is sold for a higher price than when it was purchased. The gain could be short or long term, depending on how long the capital asset was held until it was sold. Capital gains are included in your income and taxed differently depending on the type of gain and the asset used to make it. A capital loss is incurred if the capital asset is sold for less than it was purchased for. This loss is applied to lower taxable income and, as a result, lower tax liabilities.
- Other sources of income
Any other money you generate in a year that does not fit into one of the four categories above is categorized as ‘income from other sources.’ Interest on savings accounts or fixed deposits, dividends from stock investments, and gifts received are all common instances.
The overall income you earn in a fiscal year is divided into five categories. Following that, the total income is taxed at the current tax rates. The profit earned by businesses and corporations is taxed at a flat rate of 30%. Individuals, HUFs, BOIs, and AOPs are among the other taxpayers who pay a progressive rate of tax. This means that if one’s income rises, so does the rate of taxation. The tax rate varies depending on the degree of income, and the rates are presented in a tax slab that the government can adjust at any time.